OSI SYSTEMS INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of June 30, 2020, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon management’s review and evaluation, our Chief Executive Officer and Chief Financial Officer 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 reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act) for the Company. Under the supervision and with the participation of management, including 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 framework and criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2020. Moss Adams LLP, an independent registered public accounting firm, has audited and reported on the consolidated financial statements of OSI Systems, Inc. and on the effectiveness of our internal control over financial reporting. The report of Moss Adams LLP is contained in this annual report. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired 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 within the Company have been detected. ​ ITEM 9B. OTHER INFORMATION None. ​ 66 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting, presently scheduled to be held in December 2020. ​ ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting, presently scheduled to be held in December 2020. ​ ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting, presently scheduled to be held in December 2020. ​ ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting, presently scheduled to be held in December 2020. ​ ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting, presently scheduled to be held in December 2020. ​ ​ 67 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Financial Statements. Please see the accompanying Index to Consolidated Financial Statements, which appears on page F-1 of the report. The Report of Independent Registered Public Accounting Firm, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements listed in the Index to Consolidated Financial Statements, which appear beginning on page F-2 of this report, are incorporated by reference into Item 8 above. 2. Financial Statement Schedules . Supplementary Data—Unaudited Quarterly Results No other financial statement schedules are presented as the required information is either not applicable or included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. Reference is made to item 15(b) below. (b) Exhibits. The exhibits listed on the accompanying Exhibit Index immediately preceding the signature page are filed as part of, or are incorporated by reference into, this report. (c) Financial Statement Schedules. Reference is made to Item 15(a)(2) above. ​ ITEM 16. FORM 10-K SUMMARY None. ​ ​ 68 Table of Contents OSI SYSTEMS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Page Report of Independent Registered Public Accounting Firm—Moss Adams LLP F-2 Consolidated Balance Sheets F-5 Consolidated Statements of Operations F-6 Consolidated Statements of Comprehensive Income F-7 Consolidated Statements of Stockholders’ Equity F-8 Consolidated Statements of Cash Flows F-9 Notes to Consolidated Financial Statements F-10 Supplementary Data—Unaudited Quarterly Results F-42 ​ ​ ​ F-1 Table of Contents ​ Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of OSI Systems, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of OSI Systems, Inc. and subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, 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, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, in fiscal 2020 the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic No. 842. Basis for Opinions The 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’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion 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. We 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. Our 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 to 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. F-2 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s 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’s 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’s assets that could have a material effect on the financial statements. 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. Critical Audit Matters The 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. Valuation of Inventories As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated inventories balance was $241.2 million as of June 30, 2020. The Company generally values its inventories at lower of cost (first-in, first-out) or net realizable value. The Company writes 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. As disclosed by management, if these factors are less favorable than those projected, additional inventory write-downs may be required. The valuation of inventories requires management to make significant assumptions and complex judgments about the future salability of the inventory and its net realizable value. These assumptions include the assessment of net realizable value by inventory category considering retention periods, future usage and market demand for their products. Additionally, management makes qualitative judgments related to discontinued, slow moving and obsolete inventories. The primary procedures we performed to address this critical audit matter included: ● Testing the design and operating effectiveness of internal controls over the valuation of inventories, including those related to the Company’s methodology for valuing specific inventory categories; ● Testing management’s process for determining the valuation of inventories, including: o Evaluating the reasonableness of the significant assumptions used by management including those related to forecasted inventory usage and backlog; o Testing the completeness, accuracy, and relevance of the underlying data used in management’s estimate; o Testing the calculations related to the application of the methodology to specific inventory categories; F-3 Table of Contents o Performing inquiries with appropriate non-financial personnel, including sales and production employees, regarding obsolete or discontinued inventory models, cancelled sales orders and other factors to corroborate management’s assertions regarding qualitative judgments about discontinued, slow moving and obsolete inventories; and ● Developing an independent expectation of inventory write-downs at year end based on historical trends and comparing it to management’s estimate. ​ ​ ​ /s/ Moss Adams LLP ​ ​ Los Angeles, California ​ ​ August 21, 2020 ​ ​ ​ ​ ​ We have served as the Company’s auditor since 2006. ​ ​ ​ ​ F-4 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET S (amounts in thousands, except share amounts and par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ 2019 2020 ASSETS ​ ​ ​ ​ ​ ​ CURRENT ASSETS: ​ ​ ​ Cash and cash equivalents ​ $ 96,316 ​ $ 76,102 Accounts receivable, net ​ 238,440 ​ 269,840 Inventories ​ 273,711 ​ 241,226 Prepaid expenses and other current assets ​ 32,432 ​ 30,541 Total current assets ​ 640,899 ​ 617,709 Property and equipment, net ​ 127,385 ​ 127,936 Goodwill ​ 307,108 ​ 310,627 Intangible assets, net ​ 132,954 ​ 128,279 Other assets ​ 56,518 ​ 83,990 Total assets ​ $ 1,264,864 ​ $ 1,268,541 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ ​ ​ Bank lines of credit ​ $ 88,000 ​ $ 59,000 Current portion of long-term debt ​ 804 ​ 926 Accounts payable ​ 93,500 ​ 84,940 Accrued payroll and related expenses ​ 43,521 ​ 46,127 Advances from customers ​ 43,227 ​ 28,155 Other accrued expenses and current liabilities ​ 112,956 ​ 110,953 Total current liabilities ​ 382,008 ​ 330,101 Long-term debt, net ​ 257,752 ​ 267,072 Deferred income taxes ​ 7,979 ​ 5,846 Other long-term liabilities ​ 65,398 ​ 93,370 Total liabilities ​ 713,137 ​ 696,389 Commitments and contingencies (Note 11) ​ ​ ​ ​ ​ ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value— 10,000,000 shares authorized; no shares issued or outstanding ​ — ​ — Common stock, $ 0.001 par value— 100,000,000 shares authorized; issued and outstanding , 18,167,020 and 18,011,982 shares at June 30, 2019 and 2020, respectively ​ 168,913 ​ 122,553 Retained earnings ​ 399,541 ​ 474,793 Accumulated other comprehensive loss ​ ( 16,727 ) ​ ( 25,194 ) Total stockholders’ equity ​ 551,727 ​ 572,152 Total liabilities and stockholders’ equity ​ $ 1,264,864 ​ $ 1,268,541 ​ See accompanying notes to Consolidated Financial Statements. ​ ​ F-5 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATION S (amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ 2018 2019 2020 Net revenues: ​ ​ ​ ​ Products ​ $ 732,927 ​ $ 856,712 ​ $ 850,478 Services ​ 356,359 ​ 325,403 ​ 315,566 Total net revenues ​ 1,089,286 ​ 1,182,115 ​ 1,166,044 Cost of goods sold: ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ 504,483 ​ 572,673 ​ 575,342 Services ​ 193,151 ​ 178,848 ​ 170,063 Total cost of goods sold ​ 697,634 ​ 751,521 ​ 745,405 Gross profit ​ 391,652 ​ 430,594 ​ 420,639 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 239,592 ​ 262,484 ​ 251,961 Research and development ​ 61,189 ​ 56,509 ​ 57,308 Impairment, restructuring and other charges ​ 34,963 ​ 3,827 ​ 6,483 Total operating expenses ​ 335,744 ​ 322,820 ​ 315,752 Income from operations ​ 55,908 ​ 107,774 ​ 104,887 Interest and other expense, net ​ ( 19,054 ) ​ ( 21,610 ) ​ ( 18,765 ) Income before income taxes ​ 36,854 ​ 86,164 ​ 86,122 Provision for income taxes ​ ( 65,981 ) ​ ( 21,368 ) ​ ( 10,870 ) Net income (loss) ​ $ ( 29,127 ) ​ $ 64,796 ​ $ 75,252 Earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 1.57 ) ​ $ 3.58 ​ $ 4.14 Diluted ​ $ ( 1.57 ) ​ $ 3.46 ​ $ 4.05 Shares used in per share calculation: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 18,592 ​ 18,097 ​ 18,191 Diluted ​ 18,592 ​ 18,720 ​ 18,600 ​ See accompanying notes to Consolidated Financial Statements. ​ ​ F-6 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM E (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ 2018 2019 2020 Net income (loss) ​ $ ( 29,127 ) ​ $ 64,796 ​ $ 75,252 Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation adjustment ​ 1,904 ​ ( 2,059 ) ​ ( 6,590 ) Other ​ ​ 500 ​ ​ 116 ​ ​ ( 1,877 ) Other comprehensive income (loss) ​ ​ 2,404 ​ ​ ( 1,943 ) ​ ​ ( 8,467 ) Comprehensive income (loss) ​ $ ( 26,723 ) ​ $ 62,853 ​ $ 66,785 ​ See accompanying notes to Consolidated Financial Statements. ​ ​ F-7 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUIT Y (amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ Other ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ Retained ​ Comprehensive ​ ​ ​ ​ Shares Amount Earnings Income (Loss) Total Balance-July 1, 2017 18,689,568 ​ $ 222,529 ​ $ 363,872 ​ $ ( 17,188 ) ​ $ 569,213 Exercise of stock options ​ 121,651 ​ 2,863 ​ — ​ — ​ 2,863 Vesting of restricted stock/RSUs ​ 413,639 ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued under employee stock purchase program ​ 78,310 ​ 4,033 ​ — ​ — ​ 4,033 Stock compensation expense ​ — ​ 23,846 ​ — ​ — ​ 23,846 Repurchase of common stock ​ ( 1,021,458 ) ​ ​ ( 62,932 ) ​ ​ — ​ ​ — ​ ​ ( 62,932 ) Taxes paid related to net share settlement of equity awards ​ ( 249,336 ) ​ ( 20,864 ) ​ — ​ — ​ ( 20,864 ) Net loss ​ — ​ ​ — ​ ​ ( 29,127 ) ​ ​ — ​ ​ ( 29,127 ) Other comprehensive income — ​ — ​ — ​ 2,404 ​ 2,404 Balance-June 30, 2018 18,032,374 ​ $ 169,475 ​ $ 334,745 ​ $ ( 14,784 ) ​ $ 489,436 Exercise of stock options ​ 169,799 ​ 4,972 ​ — ​ — ​ 4,972 Vesting of restricted stock/RSUs ​ 364,410 ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued under employee stock purchase program ​ 75,313 ​ 4,180 ​ — ​ — ​ 4,180 Stock compensation expense ​ — ​ 25,251 ​ — ​ — ​ 25,251 Repurchase of common stock ​ ( 288,316 ) ​ ( 21,029 ) ​ — ​ — ​ ( 21,029 ) Taxes paid related to net share settlement of equity awards ​ ( 186,560 ) ​ ( 13,936 ) ​ — ​ — ​ ( 13,936 ) Net income ​ — ​ ​ — ​ ​ 64,796 ​ ​ — ​ ​ 64,796 Other comprehensive loss ​ — ​ — ​ — ​ ( 1,943 ) ​ ( 1,943 ) Balance-June 30, 2019 18,167,020 ​ $ 168,913 ​ $ 399,541 ​ $ ( 16,727 ) ​ $ 551,727 Exercise of stock options ​ 201,150 ​ ​ 1,817 ​ ​ — ​ ​ — ​ ​ 1,817 Vesting of RSUs ​ 390,613 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued under employee stock purchase program ​ 71,595 ​ ​ 4,286 ​ ​ — ​ ​ — ​ ​ 4,286 Stock compensation expense ​ — ​ ​ 23,817 ​ ​ — ​ ​ — ​ ​ 23,817 Repurchase of common stock ​ ( 562,707 ) ​ ​ ( 51,775 ) ​ ​ — ​ ​ — ​ ​ ( 51,775 ) Taxes paid related to net share settlement of equity awards ​ ( 255,689 ) ​ ​ ( 24,505 ) ​ ​ — ​ ​ — ​ ​ ( 24,505 ) Net income ​ — ​ ​ — ​ ​ 75,252 ​ ​ — ​ ​ 75,252 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ ( 8,467 ) ​ ​ ( 8,467 ) Balance-June 30, 2020 18,011,982 ​ $ 122,553 ​ $ 474,793 ​ $ ( 25,194 ) ​ $ 572,152 ​ See accompanying notes to Consolidated Financial Statements . ​ ​ F-8 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW S (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ 2018 2019 2020 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ Net income (loss) ​ $ ( 29,127 ) ​ $ 64,796 ​ $ 75,252 Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects from acquisitions: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 69,754 ​ 56,234 ​ 49,758 Stock-based compensation ​ 23,846 ​ 25,251 ​ 23,817 Provision for losses on accounts receivable ​ ​ 3,270 ​ ​ 2,741 ​ ​ 4,741 Deferred income taxes ​ ​ 26,113 ​ ​ ( 8,536 ) ​ ​ ( 431 ) Amortization of debt discount and issuance costs ​ 8,632 ​ 9,026 ​ 9,383 Impairment charges ​ ​ 7,795 ​ ​ — ​ ​ 5,458 Other ​ 1,668 ​ 292 ​ 178 Changes in operating assets and liabilities—net of business acquisitions: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ 11,340 ​ ( 27,206 ) ​ ( 37,071 ) Inventories ​ ( 59,221 ) ​ 39,447 ​ 30,752 Prepaid expenses and other assets ​ ( 836 ) ​ ( 6,175 ) ​ ( 10,566 ) Accounts payable ​ 25,145 ​ ( 16,623 ) ​ ( 8,893 ) Accrued payroll and related expenses ​ ​ 3,412 ​ ​ 3,355 ​ ​ 4,205 Advances from customers ​ 17,183 ​ ( 12,489 ) ​ ( 15,188 ) Other ​ 24,135 ​ ( 11,001 ) ​ ( 2,215 ) Net cash provided by operating activities ​ 133,109 ​ 119,112 ​ 129,180 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ ( 43,198 ) ​ ( 27,412 ) ​ ( 20,388 ) Acquisition of businesses, net of cash acquired ​ ( 100,159 ) ​ ( 18,271 ) ​ ( 8,940 ) Acquisition of intangible and other assets ​ ( 2,453 ) ​ ( 2,803 ) ​ ( 13,359 ) Net cash used in investing activities ​ ( 145,810 ) ​ ( 48,486 ) ​ ( 42,687 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ Net borrowings (payments) on bank lines of credit ​ 10,000 ​ ( 25,006 ) ​ ( 29,000 ) Proceeds from long-term debt ​ 1,044 ​ 1,409 ​ 770 Payments on long-term debt ​ ( 2,592 ) ​ ( 3,122 ) ​ ( 970 ) Proceeds from exercise of stock options and employee stock purchase plan ​ 6,896 ​ 9,152 ​ 6,103 Payment of contingent consideration ​ ​ ( 3,634 ) ​ ​ ( 5,782 ) ​ ​ ( 5,353 ) Repurchase of common stock ​ ( 62,932 ) ​ ( 21,029 ) ​ ( 51,775 ) Taxes paid related to net share settlement of equity awards ​ ( 20,864 ) ​ ( 13,936 ) ​ ( 24,505 ) Net cash used in financing activities ​ ( 72,082 ) ​ ( 58,314 ) ​ ( 104,730 ) Effect of exchange rate changes on cash ​ ( 53 ) ​ ( 810 ) ​ ( 1,977 ) Net increase (decrease) in cash and cash equivalents ​ ( 84,836 ) ​ 11,502 ​ ( 20,214 ) Cash and cash equivalents—beginning of year ​ 169,650 ​ 84,814 ​ 96,316 Cash and cash equivalents—end of year ​ $ 84,814 ​ $ 96,316 ​ $ 76,102 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ $ 9,249 ​ $ 11,862 ​ $ 7,713 Income taxes ​ $ 29,445 ​ $ 34,794 ​ $ 19,077 ​ See accompanying notes to Consolidated Financial Statements. ​ ​ F-9 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED JUNE 30, 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business —OSI Systems, Inc., together with our subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products in diversified markets, including homeland security, healthcare, defense and aerospace. We have three reporting segments: (i) Security, providing security inspection systems and related services, and turnkey security screening solutions; (ii) Healthcare, providing patient monitoring, diagnostic cardiology, and connected care systems and associated accessories and (iii) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions as well as to external original equipment manufacturer (“OEM”) customers and end users for applications in the defense, aerospace, medical and industrial markets, among others. Through our Security segment, we provide security screening products and related services globally. These products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation detection; and explosive and narcotics trace detection. In addition to these products, we also provide site design, installation, training and technical support services to our customers. We also provide turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening checkpoints for our customers. Through our Healthcare segment, we design, manufacture, market and service patient monitoring, diagnostic cardiology, and connected care systems and associated accessories globally. These products are used by care providers in critical care, emergency and perioperative areas within hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers, among others. Through our Optoelectronics and Manufacturing segment, 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, X-ray security and inspection systems and medical imaging, chemistry analysis and diagnostics instruments, telecommunications, scanners and industrial automations, internet of things (IoT) and consumer wearable products. This division provides products and services to OEM customers and end users as well as to our Security and Healthcare divisions. Consolidation —The consolidated financial statements include the accounts of OSI Systems, Inc. and our wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in joint ventures over which we have significant influence but do not have voting control are accounted for using the equity method. Investments over which we do not have significant influence or control are not material and are carried at cost as there is no readily determinable fair value for the equity interests. Use of Estimates —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 at the date of the financial statements and the reported amounts of sales and costs of sales during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, profit and loss recognition, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Actual amounts may differ from these estimates and could differ materially. C ash and Cash Equivalents —We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents. F-10 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Our cash and cash equivalents totaled $ 76.1 million at June 30, 2020. Of this amount, approximately 63 % was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily in Singapore, Mexico, the United Kingdom, Malaysia, Australia and Canada and to a lesser extent in India and Germany among other countries. We have cash holdings in financial institutions that exceed insured limits for such financial institutions; however, we mitigate this risk by utilizing high credit quality financial institutions throughout the world. Accounts Receivable —We monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We determine the allowance based on known troubled accounts, historical experience, current economic trends that might impact the level of credit losses in the future and other available information. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. Components of accounts receivable consisted of (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ 2019 2020 Accounts receivables ​ $ 253,504 $ 287,488 Less allowance for doubtful accounts ​ ( 15,064 ) ​ ( 17,648 ) Total ​ $ 238,440 ​ $ 269,840 ​ Inventories —Inventories are generally stated at the lower of cost (first-in, first-out) 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, market conditions among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required. Property and Equipment —Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value. Amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term. Leased capital assets are included in property and equipment. Amortization of property and equipment under capital leases is included with depreciation expense. In the event that property and equipment are idle, as a result of excess capacity or the early termination, non-renewal or reduction in scope of a turnkey screening operation, such assets are assessed for impairment on a periodic basis or if any indicators of impairment exist. Goodwill and Other Intangible Assets and Valuation of Long-Lived Assets —Goodwill represents the excess purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination. Goodwill is allocated to our segments based on the nature of the product line of the acquired business. The carrying value of goodwill is not amortized, but is annually tested for impairment as of the end of the second quarter and more frequently if there is an indicator of impairment. We assess qualitative factors of each of our three reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The assessments conducted as of December 31, 2019 indicated that it is not more likely than not that the fair values of our three reporting units are less than their carrying amounts, including goodwill. Despite the COVID-19 pandemic, there were no qualitative factors which would trigger impairment testing between measurement dates. Thus, we have determined that there is no goodwill impairment for any of the three reporting units. F-11 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 We evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. If impairment does exist, we measure the impairment loss and record it based on the discounted estimate of future cash flows. In estimating future cash flows, we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups. Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. Income Taxes —Deferred income taxes are provided for temporary differences between the financial statement and income tax basis of our assets and liabilities, based on enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Income tax accounting standards prescribe a two-step process for the financial statement measurement and recognition of a tax position taken or expected to be taken in a tax return. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. See Note 10 for additional information. Fair Value of Financial Instruments —Our financial instruments consist primarily of cash and cash equivalents, marketable securities, derivative instruments, accounts receivable, accounts payable and debt instruments. The carrying values of financial instruments, other than long term debt instruments, are representative of their fair values due to their short term maturities. The carrying values of our long term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. “Level 1” category includes assets and liabilities at quoted prices in active markets for identical assets and liabilities. “Level 2” category includes assets and liabilities from observable inputs other than quoted market prices. “Level 3” category includes assets and liabilities for which valuation techniques are unobservable and significant to the fair value measurement. As of June 30, 2019 and 2020, there were no assets where “Level 3” valuation techniques were used. As further discussed in Note 11 to the consolidated financial statements, our contingent payment obligations related to acquisitions are valued using “Level 3” valuation techniques on a recurring basis. The fair values of our financial assets and liabilities as of June 30, 2019 and 2020 are categorized as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2019 June 30, 2020 ​ Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets—Insurance company contracts ​ $ — ​ $ 35,899 ​ $ — ​ $ 35,899 ​ $ — ​ $ 37,155 ​ $ — ​ $ 37,155 Liabilities—Contingent consideration ​ $ — ​ $ — ​ $ 16,577 ​ $ 16,577 ​ $ — ​ $ — ​ $ 13,867 ​ $ 13,867 ​ F-12 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Revenue Recognition We recognize revenue under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which superseded all prior revenue recognition methods and industry-specific guidance. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of control for promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue recognition principles, an entity is required to identify the contract(s) with a customer, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance obligations and recognize revenue as the performance obligations are satisfied (i.e., either over time or at a point in time). ASC 606 further requires that companies disclose sufficient information to enable readers of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On July 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. Product Sales. We recognize revenue from sales of products upon shipment or delivery when control of the product transfers to the customer, depending on the terms of each sale, and when collection is probable. In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the customer acceptance criteria unless such acceptance criteria are perfunctory or inconsequential. We generally offer customers payment terms of less than one year. In cases when payment terms extend beyond one year, we consider whether the contract has a significant financing component. Service Revenue. Revenue from services includes installation and implementation of products and turnkey security screening services and after-market services. Generally, revenue from services is recognized over time as the services are performed. Revenues from out of warranty service maintenance contracts are recognized ratably over the respective terms of such contracts. Deferred revenue for such services arises from payments received from customers for services not yet performed. Contract Revenue. Sales agreements with customers can be project specific, cover a period of time, and can be renewable periodically. The contracts may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights. In certain instances, we consider an accepted customer order, governed by a master sales agreement, to be the contract with the customer when legal rights and obligations exist. Contracts with customers may include the sale of products and services, as discussed in the paragraphs above. In certain instances, contracts can contain multiple performance obligations as discussed in the paragraph below. According to the terms of a sale contract, we may receive consideration from a customer prior to transferring goods to the customer, and we record these prepayments as a contract liability. We also record deferred revenue, typically related to service contacts, when consideration is received before the services have been performed. We recognize contract liabilities and deferred revenue as net sales after all revenue recognition criteria are met. When determining revenue recognition for contracts, we make judgments based on our understanding of the obligations in each contract. We determine whether or not customer acceptance criteria are perfunctory or inconsequential. The determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognition. Critical judgments also include estimates of warranty reserves, which are established based on historical experience and knowledge of the product under warranty. F-13 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Multiple Performance Obligations. Certain agreements with customers include the sale of capital equipment involving multiple elements that may include civil works to prepare a site for the installation of equipment, manufacture and delivery of equipment, installation and integration of equipment, training of customer personnel to operate the equipment and after-market service of the equipment. We generally separate multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract. If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation. In cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price. The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct obligation or bundle of obligations has been met. The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service. When there is only one performance obligation associated with a contract, the entire sale value is attributed to that obligation. When a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price, which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances. In circumstances when a selling price is not directly observable, we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin. The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods. The timing of revenue recognition for each performance obligation may be dependent upon several milestones, including physical delivery of equipment, completion of factory acceptance test, completion of site acceptance test, installation and connectivity of equipment, certification of training of personnel and, in the case of after-market service deliverables, the passage of time (typically evenly over the post-warranty period of the service deliverable). We often provide a guarantee to support our performance under multiple performance obligations. In the event that customers are permitted to terminate such arrangements, the underlying contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination. We disaggregate revenue by reporting segment (Security, Optoelectronics and Manufacturing, and Healthcare) to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 15 for additional details of revenues by reporting segment. Contract Assets and Liabilities. We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to ASC 606 and, at times, recognize revenue in advance of the time when contracts give us the right to invoice a customer. We may also receive consideration, per the terms of a contract, from customers prior to transferring goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically for service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability. We recognize these contract liabilities as sales after all revenue recognition criteria are met. F-14 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. Freight —We record shipping and handling fees that we charge to our customers as revenue and related costs as cost of goods sold. Research and Development Costs —Research and development costs are those costs related to the development of a new product, process or service, or significant improvement to an existing product, process or service. Such costs are charged to operations as incurred. Stock-Based Compensation —Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period for all stock-based awards granted or modified. Certain restricted stock unit awards vest based on the achievement of pre-established performance criteria. The fair value of performance-based awards is estimated at the date of grant based upon the probability that the specified performance criteria will be met, adjusted for estimated forfeitures. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust the estimate of the fair value of the performance-based awards if necessary. We amortize the fair value of performance-based awards over the requisite service period for each separately vesting tranche of the award. See Note 9 to the consolidated financial statements. Impairment, Restructuring and Other Charges —We account for certain charges related to restructuring activities, litigation, acquisition-related costs and other non-routine charges as Impairment, restructuring and other charges in the consolidated financial statements. See Note 7 for additional information about these charges. Credit Risk and Concentration —Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. We restrict investments in cash equivalents to financial institutions with high credit standing. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of our company’s worldwide customer base. As of June 30, 2019, no customer accounted for greater than 10% of accounts receivable. As of June 30, 2020, one customer accounted for 13 % of accounts receivable. In fiscal year 2019 and 2020, no customer accounted for greater than 10% of revenues. We perform ongoing credit evaluations of our customers’ financial condition and maintain allowances for potential credit losses. Our cash and cash equivalents totaled $96.3 million and $76.1 million at June 30, 2019 and 2020, respectively. Of these amounts, approximately 87 % and 63 % was held by our foreign subsidiaries at June 30, 2019 and 2020, respectively. For 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 second sources for many of our materials, parts, and components. While management believes that relying on key vendors improves the efficiency and reliability of business operations, relying on any one vendor for a significant aspect of business can have a significant negative impact on revenue and profitability if that vendor fails to perform at acceptable service levels for any reason, including financial difficulties of the vendor. F-15 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Foreign Currency Translation and Transactions —We transact business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. We also have subsidiaries where the United States dollar has been designated as the functional currency based on individual facts and circumstances. Remeasurement of non-United States dollar monetary assets and liabilities are translated using period-end exchange rates and associated gains and losses are recognized in the consolidated statements of operations. Non-monetary assets and liabilities are translated using historical exchange rates. Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a gain (loss) of approximately $( 1.3 ) million, $ 0.1 million and $( 3.4 ) million for the fiscal years ended June 30, 2018, 2019 and 2020, respectively. Business Combinations —Under ASC 805, the acquisition method of accounting requires us to record assets acquired and liabilities assumed from an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price over the estimated fair value of the net assets acquired should be 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. Management’s 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 one year from the acquisition date, as additional information becomes available for preliminary estimates, we may record adjustments to the preliminary assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are included in earnings. Earnings per Share —We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. In periods where a net loss is reported, basic and diluted net loss per share are the same since the effect of potential common shares is antidilutive and therefore excluded. The underlying equity component of the 1.25 % convertible senior notes due 2022 (the “Notes”) discussed in Note 8 to the consolidated financial statements has been excluded from the calculation of diluted earnings per share as it was anti-dilutive since the average price of our common stock did not exceed the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion. The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Net income (loss) available to common stockholders ​ $ ( 29,127 ) ​ $ 64,796 ​ $ 75,252 Weighted average shares outstanding—basic ​ 18,592 ​ 18,097 ​ 18,191 Dilutive effect of equity awards ​ — ​ 623 ​ 409 Weighted average shares outstanding—diluted ​ 18,592 ​ 18,720 ​ 18,600 Basic earnings (loss) per share ​ $ ( 1.57 ) ​ $ 3.58 ​ $ 4.14 Diluted earnings (loss) per share ​ $ ( 1.57 ) ​ $ 3.46 ​ $ 4.05 Weighted average shares excluded from diluted earnings (loss) per share due to their anti-dilutive effect ​ ​ 1,280 ​ ​ 40 ​ ​ 120 ​ F-16 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Warranty Provision —We offer our customers warranties on many of the products that we sell. These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment. Concurrent with the sale of products, we record a provision for estimated warranty expenses with a corresponding increase in cost of goods sold. We periodically adjust this provision based on historical experience and anticipated expenses. We charge actual expenses of repairs under warranty, including parts and labor, to this provision when incurred. The current obligation for warranty provision is included in other accrued expenses and current liabilities and the noncurrent portion is included in other long-term liabilities in the consolidated balance sheets, whose activity for each of the three fiscal years ended June 30, 2020 is summarized in the following table (in thousands): ​ ​ ​ ​ ​ Warranty provision as of June 30, 2017 $ 15,178 Warranty claims provided for/assumed in acquisition ​ 14,156 Settlements made ​ ( 7,515 ) Warranty provision as of June 30, 2018 ​ $ 21,819 Warranty claims provided for/assumed in acquisition ​ 8,867 Settlements made ​ ( 8,962 ) Warranty provision as of June 30, 2019 ​ $ 21,724 Warranty claims provided for/assumed in acquisition ​ 7,551 Settlements made ​ ( 8,450 ) Warranty provision as of June 30, 2020 ​ $ 20,825 ​ Lease Accounting —Right of use ("ROU") assets represent our right to use an underlying asset during the reasonably certain lease terms, and lease liabilities represent our obligation to make lease payments arising from the leases. We recognize ROU lease assets and lease liabilities at lease commencement on our consolidated balance sheet based on the present value of lease payments over the lease term using a discount rate determined based on our incremental borrowing rate since the rate implicit in each lease is not readily determinable. We elected the package of practical expedients, which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component. We also elected the hindsight practical expedient, which allows us to use hindsight in determining the lease term. We do not record an ROU asset and corresponding lease liability for leases with an initial term of one year or less ("short-term leases"). The terms in our leases may include options to extend or terminate the lease. We recognize ROU assets and liabilities when it is reasonably certain that we will exercise those options. Judgment is required in our assessment as to whether renewal or termination options are reasonably certain to be exercised and factors such as contractual terms compared to current market rates and the importance of the facility and location to our operations, among others, are considered. Lease payments are made in accordance with the lease terms, and lease expense, including short-term lease expense, is recognized on a straight-line basis over the lease term. We lease facilities and certain equipment under various operating lease agreements. The majority of our lease arrangements are comprised of fixed payments while certain of our other leases provide for periodic rent increases. Our leases may contain escalation clauses and renewal options. Most of the leases require us to pay for certain other costs such as common area maintenance and property taxes. Rent expense for leases with periodic rent increases or escalation clauses is recognized on a straight-line basis over the minimum lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. We also have finance leases for fleet vehicles that are not material to the consolidated financial statements. F-17 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 The components of operating lease expense for the year ended June 30, 2020 were as follows (in thousands): ​ ​ ​ ​ ​ 2020 Operating lease cost ​ $ 10,232 Variable lease cost ​ 746 Short-term lease cost ​ 943 ​ ​ $ 11,921 ​ Supplemental balance sheet assets and liabilities related to operating leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Balance Sheet Category June 30, 2020 Operating lease ROU assets, net Other assets ​ $ 27,936 ​ ​ ​ ​ ​ ​ ​ ​ Operating lease liabilities, current portion Other accrued expenses and current liabilities ​ $ 8,537 ​ Operating lease liabilities, long-term Other long-term liabilities ​ 19,713 ​ Total operating lease liabilities ​ ​ ​ $ 28,250 ​ ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term ​ ​ ​ 4.4 years ​ Weighted average discount rate ​ ​ 4.3 % ​ Supplemental cash flow information related to operating leases for the year ended June 30, 2020 was as follows (in thousands): ​ ​ ​ ​ ​ 2020 Cash paid for operating lease liabilities ​ $ 7,664 ROU assets obtained in exchange for new lease obligations ​ 3,718 ​ Maturities of operating lease liabilities under ASC 842 (defined below) at June 30, 2020 were as follows (in thousands): ​ ​ ​ ​ ​ June 30, 2020 Less than one year ​ $ 9,515 1 – 2 years ​ 6,700 2 – 3 years ​ 4,511 3 – 4 years ​ 3,937 4 – 5 years ​ 2,667 Thereafter ​ 3,890 ​ ​ 31,220 Less: Imputed interest ​ ( 2,970 ) Total lease liabilities ​ $ 28,250 ​ Subsequent Events —In accordance with ASC 855 the Company's management reviewed all material events through August 21, 2020 the date these financial statements were available to be issued, and there are no material subsequent events. ​ F-18 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Recent Accounting Guidance Recently Adopted Accounting Pronouncements Leases In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires a lessee to recognize ROU assets and lease liabilities, initially measured at present value of the lease payments, on its balance sheet for leases and classify leases as either financing or operating. We adopted ASC 842 on July 1, 2019, using the modified retrospective method, and we elected the package of practical expedients provided in ASC 842. In accordance with ASC 842, we did not restate comparative periods and instead reported comparative prior year periods under ASC 840, "Leases." The cumulative effect of the changes made to our July 1, 2019 consolidated condensed balance sheet for the adoption of the new lease standard was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of ​ ​ ​ ​ ​ Balance at ​ Adoption ​ Balance at Balance Sheet June 30, 2019 of ASC 842 July 1, 2019 Assets ​ ​ ​ ​ ​ Other assets ​ $ 56,518 ​ $ 30,066 ​ $ 86,584 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ Other accrued expenses and current liabilities ​ $ 112,956 ​ $ 8,324 ​ $ 121,280 Other long-term liabilities ​ 65,398 ​ 21,742 ​ 87,140 ​ The adoption of the new lease accounting guidance did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows for the year ended June 30, 2020. Recently Issued Accounting Pronouncements Not Yet Adopted Convertible Debt In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). Under ASU 2020-06 the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. We are required to adopt this new guidance in the first quarter of fiscal 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements. F-19 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Income Taxes In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles of ASC 740, and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance. We are required to adopt this new guidance in the first quarter of fiscal 2022. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements. Retirement Benefit Plans In August 2018, the FASB issued authoritative guidance under ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. We are required to adopt this new guidance in the first quarter of fiscal 2021 which is not expected to have a significant impact on our disclosures in the consolidated financial statements. Intangibles In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We are required to adopt this new guidance in the first quarter of fiscal 2021 which is not expected to have a significant impact on our consolidated financial statements. ​ 2. ACQUISITION ACTIVITY Acquisition of Explosive Trace Detection Business On July 7, 2017, we acquired the global explosive trace detection business ("ETD") from Smiths Group plc. This acquisition was a carve out from a larger entity. We financed the total purchase price of $ 80.5 million with a combination of cash on hand and borrowings under our existing revolving bank line of credit. The value attributed to goodwill and intangible assets is partially non-deductible for income tax purposes. Our consolidated statement of operations for fiscal year 2018 includes $ 76.5 million of revenue and $ 10.7 million of income from operations from ETD for the period from July 7, 2017 to June 30, 2018. Pro forma adjustments assuming the ETD acquisition had occurred on July 1, 2017 would not be material to revenues and income from operations for fiscal year 2018. Other Business Acquisitions In fiscal 2020 we paid $ 8.9 million for four business acquisitions, plus an insignificant amount of future contingent consideration. The goodwill recognized for these businesses are deductible for income tax purposes. These acquisitions were financed with available cash on hand. In fiscal 2019 we paid $ 18.3 million for three business acquisitions, plus up to $ 6 million in future contingent consideration, which may be earned over a five-year period. The majority of the goodwill recognized for these businesses are deductible for income tax purposes. These acquisitions were financed with cash on hand and borrowings under our credit facility. F-20 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 In January 2018, we (through our Optoelectronics and Manufacturing division) acquired an electronics component designer and manufacturer for approximately $ 22 million, plus up to $ 6 million in potential earnout consideration. In aggregate, $ 12.6 million was attributed to intangible assets, $ 14.0 million was attributed to goodwill, and $ 3.3 million was attributed to net assets acquired. The acquisition was financed with cash on hand and borrowings under our existing revolving bank line of credit. In July 2017, we (through our Security division) completed an acquisition of a privately held technology company. The acquisition purchase price was financed with cash on hand and was in an amount (including potential earnout consideration) determined to be insignificant by management. These business acquisitions, individually and in the aggregate, were not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations related to these businesses have not been presented. ​ 3. CONTRACT ASSETS AND LIABILITIES ​ The table below shows the balance of contract assets and liabilities as of June 30, 2019 and 2020, including the change between the periods. There were no substantial non-current contract assets for the periods presented. ​ Contract Assets (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, ​ ​ ​ ​ ​ 2019 ​ 2020 ​ Change ​ % Change ​ Unbilled revenue (included in accounts receivable, net) ​ $ 19,287 ​ $ 43,011 ​ $ 23,724 123 % ​ Contract Liabilities (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2019 June 30, 2020 Change % Change Advances from customers ​ $ 43,227 ​ $ 28,155 ​ $ ( 15,072 ) ( 35 ) % Deferred revenue—current ​ 33,641 ​ 32,863 ​ ( 778 ) ( 2 ) % Deferred revenue—long-term ​ 9,506 ​ 13,214 ​ 3,708 39 % ​ Remaining Performance Obligations . Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 171.7 million. We expect to recognize revenue on approximately 59 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter. During the year ended June 30, 2020, we recognized revenue of $ 72.7 million from contract liabilities existing as of July 1, 2019. ​ 4. INVENTORIES Inventory consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ 2019 2020 Raw materials ​ $ 143,697 $ 132,797 Work-in-process ​ 67,897 ​ 50,023 Finished goods ​ 62,117 ​ 58,406 Total ​ $ 273,711 ​ $ 241,226 ​ ​ F-21 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 ​ ​ 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ ​ ​ ​ ​ Useful ​ June 30, ​ Lives 2019 2020 Land ​ N/A ​ $ 16,564 ​ $ 16,516 Buildings, civil works and improvements ​ 5 - 40 years ​ 55,391 ​ 57,709 Leasehold improvements ​ 1 - 13 years ​ 8,311 ​ 9,052 Equipment and tooling ​ 3 - 10 years ​ 128,428 ​ 128,657 Furniture and fixtures ​ 3 - 10 years ​ 3,190 ​ 3,166 Computer equipment ​ 3 - 5 years ​ 18,733 ​ 17,487 Computer software ​ 3 - 10 years ​ 20,146 ​ 18,217 Computer software implementation in process ​ N/A ​ ​ 8,563 ​ ​ 11,817 Construction in process ​ N/A ​ 5,760 ​ 3,598 Total ​ ​ ​ 265,086 ​ 266,219 Less accumulated depreciation and amortization ​ ​ ​ ( 137,701 ) ​ ( 138,283 ) Property and equipment, net ​ ​ ​ $ 127,385 ​ $ 127,936 ​ During fiscal 2018, 2019 and 2020, depreciation expense was approximately $ 43.3 million, $ 20.5 million and $ 21.5 million, respectively. ​ 6. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill by segment for fiscal 2019 and 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ Division Division Division Consolidated Balance as of June 30, 2018 ​ $ 191,810 ​ $ 40,157 ​ $ 60,246 ​ $ 292,213 Goodwill acquired or adjusted during the period ​ 8,340 ​ — ​ 7,019 ​ 15,359 Foreign currency translation adjustment ​ ( 71 ) ​ ( 93 ) ​ ( 300 ) ​ ( 464 ) Balance as of June 30, 2019 ​ $ 200,079 ​ $ 40,064 ​ $ 66,965 ​ $ 307,108 Goodwill acquired or adjusted during the period ​ 3,973 ​ — ​ 1,033 ​ 5,006 Foreign currency translation adjustment ​ ( 425 ) ​ ( 81 ) ​ ( 981 ) ​ ( 1,487 ) Balance as of June 30, 2020 ​ $ 203,627 ​ $ 39,983 ​ $ 67,017 ​ $ 310,627 ​ The measurement periods for the valuation of assets and liabilities acquired may extend up to one year. Adjustments in acquisitions accounting may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined. F-22 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Intangible assets subject to amortization consisted of the following (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2019 ​ June 30, 2020 ​ ​ Weighted ​ Gross ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Carrying ​ Accumulated ​ Intangibles ​ Carrying ​ Accumulated ​ Intangibles ​ Lives Value Amortization Net Value Amortization Net Amortizable assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Software development costs 8 -9 years ​ $ 29,393 ​ $ ( 12,747 ) ​ $ 16,646 ​ $ 41,332 ​ $ ( 16,295 ) ​ $ 25,037 Patents 19 years ​ 8,688 ​ ( 1,927 ) ​ 6,761 ​ 9,962 ​ ( 2,584 ) ​ 7,378 Developed technology 10 years ​ 53,460 ​ ( 14,050 ) ​ 39,410 ​ 55,719 ​ ( 19,556 ) ​ 36,163 Customer relationships/backlog 7 years ​ 63,101 ​ ( 22,132 ) ​ 40,969 ​ 64,128 ​ ( 32,110 ) ​ 32,018 Total amortizable assets ​ ​ ​ 154,642 ​ ( 50,856 ) ​ 103,786 ​ 171,141 ​ ( 70,545 ) ​ 100,596 Non-amortizable assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IPR&D ​ ​ ​ ​ 2,290 ​ ​ — ​ ​ 2,290 ​ ​ 533 ​ ​ — ​ ​ 533 Trademarks ​ ​ ​ 26,878 ​ — ​ 26,878 ​ 27,150 ​ — ​ 27,150 Total intangible assets ​ ​ ​ $ 183,810 ​ $ ( 50,856 ) ​ $ 132,954 ​ $ 198,824 ​ $ ( 70,545 ) ​ $ 128,279 ​ During fiscal 2018 and 2020, we recorded impairment charges related to intangible assets for IPR&D of $ 2.5 million and $ 3.3 million, respectively, due to changes in facts and circumstances associated with shifts in strategic directions of the intended use of the assets which led us to conclude that the carrying values of the intangible assets were not recoverable. These intangible assets impairment charges were included in impairment, restructuring and other charges in our consolidated statements of operations. During fiscal 2019 there were no impairment charges related to intangible assets. Amortization expense for fiscal 2018, 2019 and 2020 was $ 19.5 million, $ 21.4 million and $ 20.7 million, respectively. Future acquisitions could cause these amounts to increase. At June 30, 2020, the estimated future amortization expense was as follows (in thousands): ​ ​ ​ ​ ​ 2021 ​ $ 18,038 2022 ​ 17,376 2023 ​ 16,269 2024 ​ 15,497 2025 ​ 11,720 Thereafter, including assets that have not yet begun to be amortized ​ 21,696 Total ​ $ 100,596 ​ Software development costs for software products incurred before establishing technological feasibility are charged to operations. Software development costs incurred after establishing technological feasibility are capitalized on a product by product basis until the product is available for general release to customers at which time amortization begins. Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product bear to the total current and anticipated future revenues for that product. In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above. During fiscal 2018, 2019 and 2020, we capitalized software development costs in the amounts of $ 1.8 million, $ 2.7 million and $ 11.9 million, respectively. ​ F-23 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 7. IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES Impairment During fiscal 2020, we impaired an intangible asset for IPR&D in the Security division due to a strategic shift in the direction of the project and abandoned a non-core product line in our Healthcare division which resulted in the write-off of assets, including intangible and fixed assets. As a result, $ 5.5 million of assets, including intangible and fixed assets, were written off as we determined that these assets had no value and were permanently impaired. During fiscal 2019, there were no impairment charges. During fiscal 2018, we impaired (i) a product line in our Security division that became redundant as a result of the ETD acquisition, (ii) two product lines in our Healthcare division, and (iii) certain trademarks in our Optoelectronics and Manufacturing division that are no longer used. As a result, $ 7.8 million of assets, including intangible and fixed assets, were written off as we determined that these assets had no value and were permanently impaired. Restructuring and Other Charges We endeavor to align our global capacity and infrastructure with demand by our customers as well as fully integrate acquisitions and thereby improve operational efficiency. Acquisition and integration costs. During fiscal 2020, we incurred $ 0.4 million in costs for professional fees relating to acquisitions. Facility consolidation / employee termination. During fiscal 2020, we incurred $ 4.0 million in employee termination costs as part of operational efficiency initiatives. We also incurred $ 0.2 million in costs associated with the consolidation of facilities in our Security division. Legal fees and settlement costs. During fiscal 2020, legal fees and settlement costs resulted in a net recovery of $ 3.6 million as a result of insurance reimbursements of certain legal costs. The following tables summarize restructuring and other charges for the periods set forth below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Total Acquisition-related costs ​ $ — ​ $ — ​ $ — ​ $ 1,541 ​ $ 1,541 Employee termination costs ​ 1,485 ​ 16 ​ 610 ​ — ​ 2,111 Facility closures/consolidation ​ ​ 213 ​ ​ 263 ​ ​ 26 ​ ​ — ​ ​ 502 Legal and accrued settlement costs ​ — ​ 19,364 ​ — ​ 3,650 ​ 23,014 Total expensed ​ $ 1,698 ​ $ 19,643 ​ $ 636 ​ $ 5,191 ​ $ 27,168 ​ F-24 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Total Acquisition-related costs ​ $ — ​ $ — ​ $ 287 ​ $ 1,021 ​ $ 1,308 Employee termination costs ​ 132 ​ 1,629 ​ 687 ​ — ​ 2,448 Facility closures/consolidation ​ — ​ 1,918 ​ 84 ​ — ​ 2,002 Legal and accrued settlement costs, net ​ — ​ — ​ — ​ ( 1,931 ) ​ ( 1,931 ) Total expensed ​ $ 132 ​ $ 3,547 ​ $ 1,058 ​ $ ( 910 ) ​ $ 3,827 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Total Acquisition-related costs ​ $ 309 ​ $ — ​ $ 41 ​ $ — ​ $ 350 Employee termination costs ​ 2,748 ​ 466 ​ 618 ​ 184 ​ 4,016 Facility closures/consolidation ​ 231 ​ — ​ — ​ ​ ​ 231 Legal and accrued settlement costs, net ​ — ​ — ​ — ​ ( 3,572 ) ​ ( 3,572 ) Total expensed ​ $ 3,288 ​ $ 466 ​ $ 659 ​ $ ( 3,388 ) ​ $ 1,025 ​ The changes in the accrual for restructuring and other charges for fiscal 2019 and 2020 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Legal ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Facility ​ Settlements ​ ​ ​ ​ ​ Acquisition- ​ Employee ​ Closure/ ​ and ​ ​ ​ ​ ​ related ​ Termination ​ Consolidation ​ Related ​ ​ ​ ​ Costs Costs Cost Costs Total Balance as of June 30, 2018 ​ $ — ​ $ 837 ​ $ 399 ​ $ 14,065 ​ $ 15,301 Restructuring and other charges ​ ​ 1,308 ​ ​ 2,448 ​ ​ 2,002 ​ ​ ( 1,931 ) ​ ​ 3,827 Payments and other adjustments ​ ​ ( 1,308 ) ​ ​ ( 2,853 ) ​ ​ ( 2,401 ) ​ ​ ( 5,803 ) ​ ​ ( 12,365 ) Balance as of June 30, 2019 ​ $ — ​ $ 432 ​ $ — ​ $ 6,331 ​ $ 6,763 Restructuring and other charges, net ​ 350 ​ 4,016 ​ 231 ​ ( 3,572 ) ​ 1,025 Payments and other adjustments ​ ( 350 ) ​ ( 3,903 ) ​ ( 30 ) ​ ( 877 ) ​ ( 5,160 ) Balance as of June 30, 2020 ​ $ — ​ $ 545 ​ $ 201 ​ $ 1,882 ​ $ 2,628 ​ The following table summarizes the impairment, restructuring and other charges for fiscal 2018, 2019 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Impairment of assets ​ $ 7,795 ​ $ — ​ $ 5,458 Facility closure / consolidations ​ ​ 502 ​ 2,002 ​ 231 Employee termination costs ​ ​ 2,111 ​ 2,448 ​ 4,016 Legal fees, settlements and related costs, net ​ ​ 23,014 ​ ( 1,931 ) ​ ( 3,572 ) Acquisition-related costs ​ ​ 1,541 ​ 1,308 ​ 350 Total impairment, restructuring and other charges ​ $ 34,963 ​ $ 3,827 ​ $ 6,483 ​ ​ F-25 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 8. BORROWINGS AND DEBT Revolving Credit Facility In April 2019, we entered into an amendment to our revolving credit facility, which, among other things, increased the aggregate committed amount available to us from $ 525 million to $ 535 million and extended the maturity date to April 2024. The credit facility includes a $ 300 million sub-limit for letters of credit. Under certain circumstances, we have the ability to increase the facility by the greater of $ 250 million or such amount as would not cause our secured leverage ratio to exceed a specified level. Borrowings under this facility bear interest at LIBOR plus a margin of 1.0 % as of June 30, 2020 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility). The LIBOR index will be discontinued by the end of calendar year 2021. The terms of our credit facility allow for replacement if that occurs. Letters of credit reduce the amount available to borrow under the credit facility by their face value amount. The unused portion of the facility bears a commitment fee of 0.10 % as of June 30, 2020 (which fee can range from 0.10 % to 0.25 % based on our consolidated net leverage ratio as defined in the credit facility). Our borrowings under the credit agreement are guaranteed by certain of our U.S.-based subsidiaries and are secured by substantially all of our assets and substantially all the assets of certain of our subsidiaries. The agreement contains various representations and warranties, affirmative, negative and financial covenants and conditions of default. As of June 30, 2020, there was $ 59.0 million of borrowings outstanding under the revolving credit facility and $ 46.5 million outstanding under the letters of credit sub facility.The amount available to borrow under the credit facility as of June 30, 2020 was $ 429.5 million. Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term. The principal amount of each revolving loan is due and payable in full on the maturity date. We have the right to repay each revolving loan in whole or in part from time to time without penalty. It is our practice to routinely borrow and repay several times per year under this revolving facility. Therefore, borrowings under the credit facility are included in current liabilities. As of June 30, 2020, we are in compliance with all covenants under this credit facility. 1.25% Convertible Senior Notes Due 2022 In February 2017, we issued $ 287.5 million of the Notes in a private offering. The Notes are governed by an indenture dated February 22, 2017. The maturity for the payment of principal is September 1, 2022. The Notes bear interest at the rate of 1.25 % and are payable in cash semiannually in arrears on each March 1 and September 1. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries, as well as any of our existing and future indebtedness that may be guaranteed by our subsidiaries to the extent of such guarantees (including the guarantees of certain of our subsidiaries under our existing revolving credit facility). The Notes are convertible prior to March 1, 2022 only upon specified events and during specified periods and are, thereafter convertible, at any time, in each case at an initial conversion rate of 9.3056 per $1,000 principal amount of the Notes, which is equal to an initial conversion price of approximately $ 107.46 per share or a 38.5 % premium to our stock price at the time of the issuance. The conversion rate is subject to adjustment upon certain events. Upon conversion, the Notes may be settled, at our election, in shares of our common stock, cash or a combination of cash and shares of common stock. We have initially elected a combination settlement method to satisfy the conversion obligation, which allows us to settle the principal amount of the Notes in cash and to settle the excess conversion value, if any, in shares of common stock, as well as cash in lieu of fractional shares. F-26 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 We may redeem 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) during any period of 30 consecutive trading days. If we undergo a fundamental change, as defined in the indenture for the Notes, subject to certain conditions, holders of the Notes may require us to repurchase all or part of the Notes for cash at a price equal to 100 % of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The occurrence of a fundamental change will also result in the Notes becoming immediately convertible. Since the last reported sales price of our Common Stock did not exceed 130% of the conversion price for at least 20 trading days within any applicable period of 30 consecutive trading days during fiscal year 2020, the Notes are not yet convertible. Pursuant to ASC 470-20, we allocated the $ 287.5 million gross proceeds of the Notes between liability and equity components. The initial $ 242.4 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature for similar terms and priced on the same day the Notes were issued. The initial $ 45.1 million equity component represents the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes. Issuance costs of $ 7.7 million were allocated between debt ($ 6.5 million) and equity ($ 1.2 million) components with the portion allocated to the debt presented as an offset against long term debt in the consolidated balance sheet and being amortized as interest expense over the life of the Notes using the effective interest method. The total interest expense recognized for the fiscal year ended June 30, 2020 related to the Notes was $ 13.0 million, which consisted of $ 3.6 million of contractual interest expense, $ 8.2 million of debt discount amortization and $ 1.2 million of amortization of debt issuance costs. For fiscal year ended June 30, 2019, the total interest expense was $ 12.6 million, which consisted of $ 3.6 million of contractual interest expense, $ 7.8 million of debt discount amortization and $ 1.2 million of amortization of debt issuance costs. For fiscal year ended June 30, 2018, the total interest expense was $ 12.3 million, which consisted of $ 3.6 million of contractual interest expense, $ 7.5 million of debt discount amortization and $ 1.2 million of amortization of debt issuance costs. As of June 30, 2019 and 2020, the unamortized debt discount was $ 27.3 million and $ 19.1 million, respectively, which is being amortized over the remaining contractual term to maturity of the Notes using an effective interest rate of 4.50 %. The unamortized debt issuance cost of $ 3.7 million and $ 2.5 million as of June 30, 2019 and 2020, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes. Other Borrowings Several of our foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters-of-credit. As of June 30, 2020, $ 40.2 million was outstanding under these letter-of-credit facilities. As of June 30, 2020, the total amount available under these credit facilities was $ 30.1 million. Long-term debt consisted of the following at June 30, 2019 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 1.25% convertible notes due 2022: ​ ​ ​ ​ ​ ​ Principal amount ​ $ 287,500 ​ $ 287,500 Unamortized discount ​ ​ ( 27,283 ) ​ ​ ( 19,075 ) Unamortized debt issuance costs ​ ​ ( 3,722 ) ​ ​ ( 2,547 ) ​ ​ ​ 256,495 ​ ​ 265,878 Other long-term debt ​ 2,061 ​ 2,120 ​ ​ 258,556 ​ 267,998 Less current portion of long-term debt ​ ( 804 ) ​ ( 926 ) Long-term portion of debt ​ $ 257,752 ​ $ 267,072 ​ F-27 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Fiscal year principal payments of long-term debt as of June 30, 2020 are as follows (in thousands): ​ ​ ​ ​ ​ 2021 ​ $ 926 2022 ​ 791 2023 ​ 266,220 2024 ​ 61 2025 ​ — Thereafter ​ — Total ​ $ 267,998 ​ ​ 9. STOCK-BASED COMPENSATION As of June 30, 2020, we maintained the Amended and Restated 2012 Incentive Award Plan (the “2012 Plan”) and the Amended and Restated 2006 Equity Participation Plan (“2006 Plan”) as stock-based employee compensation plans. No further grants may be made under the 2006 Plan. The 2012 Plan and the 2006 Plan are collectively referred to as the “OSI Plans.” We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Cost of goods sold ​ $ 972 ​ $ 732 ​ $ 708 Selling, general and administrative ​ 22,293 ​ 23,876 ​ 22,546 Research and development ​ 581 ​ 643 ​ 563 Stock based compensation expense ​ $ 23,846 ​ $ 25,251 ​ $ 23,817 ​ As of June 30, 2020, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.4 million for stock options and $ 13.7 million for RSUs. We expect to recognize these costs over a weighted-average period of 1.9 years with respect to the stock options and 2.0 years for grants of RSUs. Employee Stock Purchase Plan —We have an employee stock purchase plan under which eligible employees may purchase a limited number of shares of Common Stock at a discount of up to 15 % of the market value of such stock at pre-determined, plan-defined dates. During the three years ended June 30, 2018, 2019 and 2020, employees purchased 80,115 70,857 , and 69,399 shares, respectively. As of June 30, 2020, there were 601,434 shares of our Common Stock available for issuance under the plan. OSI Plans Awards are granted in the form of incentive options, nonqualified options, restricted stock awards, stock appreciation rights, RSUs, performance shares and stock bonuses, amongst other forms of equity, to qualified employees, directors and consultants. Under the OSI Plans, the exercise price of nonqualified options and incentive stock options may not be less than the fair market value of our Common Stock on the date of grant. The exercise price of nonqualified options and incentive stock options granted to individuals who own more than 10 % of our voting stock may not be less than 110 % of the fair market value of our Common Stock on the date of grant. Stock options granted under the OSI Plans typically vest over three years based on continued service. Restricted stock and RSUs typically vest over three to four years based on continued service. Certain restricted stock awards granted to senior management vest based on the achievement of pre-established performance criteria. F-28 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Stock Option Fair Value Estimation Assumptions. We estimate the fair value of our stock options at the date of grant using the Black-Scholes option-pricing valuation model. Our valuation model is affected by our stock price as well as weighted average assumptions for a number of subjective variables described below. Expected Dividend. Expected dividend is based on historical patterns and our anticipated dividend payments over the expected holding period. Risk-Free Interest Rate. The risk-free interest rate for stock options is based on U.S. Treasuries for a maturity matching the expected holding period. Expected Volatility. Expected volatility is based on our historical share price volatility matching the expected holding period. No single method of estimating volatility is proper under all circumstances and to the extent that a company can derive implied volatility based on the trading of its financial instruments on a public market, it may be appropriate to use both implied and historical volatility in its assumptions. We have certain financial instruments that are publicly traded from which we can derive the implied volatility. Therefore, we use implied and historical volatility for valuing our stock options. We believe that implied and historical volatility is a better indicator of expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility. Expected Holding Period. We use historical stock option exercise data to estimate the expected holding period. Changes in assumptions can materially impact the estimated fair value of stock options. The weighted average assumptions used in the valuation model are presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Expected dividend — ​ — ​ — ​ Risk-free interest rate 1.9 % 2.6 % 1.6 % Expected volatility 29.0 % 28.0 % 26.0 % Expected holding period (in years) 4.5 ​ 4.5 ​ 4.5 ​ ​ The following summarizes stock option activity for fiscal years 2018, 2019 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Weighted-Average ​ Aggregate ​ ​ Number of ​ Exercise ​ Remaining Contractual ​ Intrinsic Value ​ Options Price Term (in thousands) Outstanding at June 30, 2017 780,671 ​ 30.00 ​ ​ ​ ​ ​ Granted 25,379 ​ 85.83 ​ ​ ​ ​ ​ Exercised ( 121,651 ) ​ 23.53 ​ ​ ​ ​ ​ Expired or forfeited ( 6,874 ) ​ 73.77 ​ ​ ​ ​ ​ Outstanding at June 30, 2018 677,525 $ 32.80 ​ ​ ​ ​ ​ Granted 19,259 ​ 73.37 ​ ​ ​ ​ ​ Exercised ( 169,799 ) ​ 32.11 ​ ​ ​ ​ ​ Expired or forfeited ( 11,101 ) ​ 70.50 ​ ​ ​ ​ ​ Outstanding at June 30, 2019 515,884 $ 33.74 ​ ​ ​ ​ Granted 13,263 ​ ​ 101.31 ​ ​ ​ ​ ​ Exercised ( 201,150 ) ​ ​ 20.48 ​ ​ ​ ​ ​ Expired or forfeited ( 1,693 ) ​ ​ 81.79 ​ ​ ​ ​ ​ Outstanding at June 30, 2020 326,304 ​ $ 44.41 ​ 2.4 years ​ $ 10,403 Exercisable at June 30, 2020 ​ 295,533 ​ $ 39.89 1.8 years ​ $ 10,378 ​ F-29 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 The per-share weighted-average grant-date fair value of stock options granted under the OSI Plans was $ 23.64 , $ 20.45 and $ 24.88 for fiscal 2018, 2019 and 2020, respectively. The total intrinsic value of options exercised during fiscal 2020 was $ 16.8 million. Restricted Stock Awards and Restricted Stock Units —A summary of restricted stock award and RSU activity for the periods indicated was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ Shares Fair Value Nonvested at June 30, 2017 611,687 ​ $ 65.85 Granted 351,034 ​ 74.09 Vested ( 413,639 ) ​ 65.33 Forfeited ( 22,705 ) ​ 70.32 Nonvested at June 30, 2018 526,377 ​ $ 71.56 Granted 375,580 ​ 74.40 Vested ( 364,410 ) ​ 70.92 Forfeited ( 16,407 ) ​ 74.13 Nonvested at June 30, 2019 521,140 ​ $ 73.97 Granted 308,431 ​ ​ 87.88 Vested ( 390,613 ) ​ ​ 68.63 Forfeited ( 15,368 ) ​ ​ 83.36 Nonvested at June 30, 2020 423,590 ​ $ 88.68 ​ The per-share weighted average grant-date fair value of RSUs granted under the OSI Plans was $ 74.09 , $ 74.40 , and $ 87.88 for fiscal 2018, 2019 and 2020, respectively. The total fair value of shares vested during fiscal 2018, 2019 and 2020 was $ 27.0 million, $ 25.8 million, and $ 26.8 million, respectively. As of June 30, 2020, there were approximately 1.0 million shares available for grant under the 2012 Plan. Under the terms of the 2012 Plan, RSUs and restricted stock granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted. RSUs and restricted stock forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited. We granted 117,346 , 97,514 , and 81,621 performance-based awards during fiscal 2018, 2019 and 2020, respectively. These performance-based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from zero to 280 % of the original number of shares or units awarded. ​ 10. INCOME TAXES The following is a geographical breakdown of income before the provision for income taxes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Pre-tax income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ ( 40,335 ) ​ $ 6,575 ​ $ 41,025 Foreign ​ 77,189 ​ 79,589 ​ 45,097 Total pre-tax income ​ $ 36,854 ​ $ 86,164 ​ $ 86,122 ​ F-30 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Our provision (benefit) for income taxes consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ 8,518 ​ $ 541 ​ $ 2,661 State ​ 707 ​ 883 ​ 577 Foreign ​ 30,643 ​ 28,480 ​ 8,063 Total current provision ​ 39,868 ​ 29,904 ​ 11,301 Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ 35,957 ​ $ ( 1,697 ) ​ $ 2,882 State ​ 338 ​ 1,214 ​ 45 Foreign ​ ( 10,182 ) ​ ( 8,053 ) ​ ( 3,358 ) Total deferred provision (benefit) ​ 26,113 ​ ( 8,536 ) ​ ( 431 ) Total provision ​ $ 65,981 ​ $ 21,368 ​ $ 10,870 ​ As of June 30, 2019 and 2020, our liability for uncertain tax positions was $ 4.6 million and $ 6.0 million, respectively. The $ 6.0 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate. We recognize potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2020, we had accrued $ 0.1 million for interest and penalties. Our uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include fiscal years after 2016 for federal purposes, fiscal years after 2015 for state purposes and fiscal years after 2008 for various foreign jurisdictions. Facts and circumstances could arise that could cause us to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of statutes of limitation. Since the ultimate resolution of uncertain tax positions depends on many factors and assumptions, we are not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes. A summary of activity of unrecognized tax benefits for fiscal 2019 and 2020 is as follows (in thousands). ​ ​ ​ ​ ​ Balance at June 30, 2018 ​ $ 10,498 Additions on tax positions for the current year ​ 940 Additions on tax positions from prior years ​ 346 Reduction in tax positions from prior year ​ ( 398 ) Balance at June 30, 2019 ​ $ 11,386 Additions on tax positions for the current year ​ 1,764 Additions on tax positions from prior years ​ 451 Reduction in tax positions from prior year ​ ( 291 ) Balance at June 30, 2020 ​ $ 13,310 ​ The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and significantly changed U.S. tax law and included numerous provisions that affect our business. In the fiscal year ended June 30, 2018, we recorded tax expense of $ 55 million related to the enactment of the Tax Act. ​ F-31 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Deferred income tax assets (liabilities) consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ 2019 2020 Deferred income tax assets: ​ ​ ​ ​ ​ ​ Tax credit carryforwards ​ $ 14,785 ​ $ 15,277 Net operating loss carryforwards ​ 9,331 ​ 4,241 Customer advances ​ 3,365 ​ 2,725 Allowance for doubtful accounts ​ 4,287 ​ 2,927 Inventory reserve ​ 11,503 ​ 11,999 Inventory capitalization ​ 2,721 ​ 2,762 Accrued liabilities ​ 5,953 ​ 4,879 Operating lease liabilities ​ ​ — ​ ​ 7,243 Stock and deferred compensation ​ 12,737 ​ 9,911 Other assets ​ 3,157 ​ 2,178 Total deferred income tax assets ​ 67,839 ​ 64,142 Valuation allowance ​ ( 23,377 ) ​ ( 17,371 ) Net deferred income tax assets ​ 44,462 ​ 46,771 Deferred income tax liabilities: ​ ​ ​ ​ ​ ​ Depreciation ​ ( 4,866 ) ​ ( 1,459 ) Amortization of intangible assets ​ ( 26,056 ) ​ ( 27,907 ) Withholding tax on unrepatriated foreign earnings ​ ​ ( 5,114 ) ​ ​ ( 5,114 ) Operating lease ROU assets ​ ​ — ​ ​ ( 7,295 ) State transition tax ​ ​ ( 1,754 ) ​ ​ ( 1,754 ) Convertible debt ​ ​ ( 6,443 ) ​ ​ ( 4,432 ) Prepaid expenses ​ ( 3,903 ) ​ ( 1,399 ) Other liabilities ​ ( 308 ) ​ ( 143 ) Total deferred income tax liabilities ​ ( 48,444 ) ​ ( 49,503 ) Net deferred income tax liability ​ $ ( 3,982 ) ​ $ ( 2,732 ) ​ The components of the net deferred income tax asset are classified in the consolidated balance sheets as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 Long term deferred income tax asset, included in other assets ​ $ 3,997 ​ $ 3,114 Long term deferred income tax liability ​ ( 7,979 ) ​ ( 5,846 ) Net deferred income tax liability ​ $ ( 3,982 ) ​ $ ( 2,732 ) ​ The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets ​ $ 4,344 ​ $ 15,614 Current taxes payable, included in other accrued expenses and current liabilities ​ ( 3,094 ) ​ ( 4,086 ) Net tax receivable (payable) ​ $ 1,250 ​ $ 11,528 ​ F-32 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 As of June 30, 2020, we had state and foreign net operating loss carryforwards of approximately $ 36.5 million and $ 9.4 million, respectively. As of June 30, 2020, we had federal and state tax credit carryforwards of approximately $ 14.3 million and $ 8.1 million, respectively. Our credit carryforwards will begin to expire in the tax year ending June 30, 2030. We have established valuation allowances that relate to the net operating loss of certain subsidiaries, capital losses, and tax credits. During the year ended June 30, 2020, we recorded a net aggregated decrease of $ 6.0 million to these valuation allowances. We review the adequacy of individual valuation allowances and release such allowances when it is determined that it is more likely than not that the related benefits will be realized. We recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the current year. An income tax benefit of approximately $ 3.1 million and expense of approximately $ 1.4 million was recognized in fiscal 2019 and 2020, respectively. The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ 2018 2019 2020 Provision for income taxes at federal statutory rate ​ 28.1 % 21.0 % 21.0 % Research and development tax credits ​ ( 1.4 ) ​ ( 1.6 ) ​ ( 1.6 ) ​ Foreign income subject to tax at other than federal statutory rate ​ ( 4.8 ) ​ 2.9 ​ ( 0.8 ) ​ Stock compensation excess tax benefit ​ ( 8.8 ) ​ ( 3.2 ) ​ ( 6.7 ) ​ Officers’ compensation ​ — ​ 3.5 ​ 4.4 ​ Change in valuation allowance ​ 19.6 ​ ( 1.8 ) ​ ( 1.3 ) ​ Unrecognized tax (benefit) expense ​ ( 6.8 ) ​ 0.1 ​ 1.2 ​ Meals and entertainment ​ 1.5 ​ 0.4 ​ 0.3 ​ Tax on foreign currency gains and losses ​ ( 0.1 ) ​ 0.2 ​ 2.1 ​ State tax expense ​ ( 1.3 ) ​ 1.6 ​ 1.1 ​ U.S. tax on foreign earnings ​ 2.5 ​ 1.0 ​ ( 2.1 ) ​ Changes in prior year estimates ​ — ​ — ​ ( 6.4 ) ​ Mexico imputed income or expense ​ ( 3.5 ) ​ ( 0.5 ) ​ — ​ Global intangible low-taxed income, net of foreign tax credits ​ — ​ — ​ 1.8 ​ Remeasurement of U.S. net deferred tax assets from 35% to 21% ​ 16.0 ​ — ​ — ​ Deemed repatriation of non-U.S. earnings ​ 102.2 ​ — ​ — ​ Withholding tax on deemed repatriation foreign earnings ​ 35.8 ​ — ​ — ​ Other ​ — ​ 1.2 ​ ( 0.4 ) ​ Effective income tax rate ​ 179.0 % 24.8 % 12.6 % ​ The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates. ​ 11. COMMITMENTS AND CONTINGENCIES Contingent Acquisition Obligations —Under the terms and conditions of the purchase agreements associated with certain acquisitions, we may be obligated to make additional payments based on the achievement of certain sales or profitability milestones through the acquired operations. For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 21.1 million as of June 30, 2020. F-33 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 We account for such contingent payments for acquisitions which occurred through the end of fiscal year 2009 as additions to the purchase price of the acquired business; and we made $ 1.6 million of such payments during the fiscal year ended June 30, 2020. For acquisitions completed after fiscal 2009, pursuant to Financial Accounting Standard 141R, which was codified into ASC 805, the estimated fair value of these obligations is recorded as a liability at the time of the acquisition with subsequent revisions recorded in Selling, general and administrative expense in the consolidated financial statements. The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs, which may include projected revenues, gross margins, operating income, and the estimated probability of achieving the earn-outs. ​ These projections and probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities. The following table provides a roll-forward from June 30, 2019 to June 30, 2020 of the contingent consideration liability, which is included in other accrued expenses and current liabilities, and other long-term liabilities in our consolidated balance sheets (in thousands): ​ ​ ​ ​ ​ Beginning fair value, June 30, 2019 ​ $ 16,577 Additions ​ ​ 2,091 Change in fair value ​ ( 999 ) Payments on contingent earn-out obligations ​ ( 3,802 ) Ending fair value, June 30, 2020 ​ $ 13,867 ​ Advances from Customers —We receive advances from customers associated with certain contracts. These advances are paid in cash by customers, and we account for these as liabilities until our contractual obligations are complete. Environmental Contingencies —We are subject to various environmental laws. Our practice is to conduct appropriate environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations. In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants. We continue to investigate contamination of the soil and groundwater beneath the Hawthorne, California facility that resulted from unspecified on- and off-site releases occurring prior to our occupancy. We believe the releases are of a historical nature and not uncommon to the region in general. We continue to take voluntary actions, in cooperation with the local governing agency, to fully investigate the site in order to develop appropriate remedial actions. We have not accrued for loss contingencies relating to the Hawthorne facility or any other environmental matters because we believe that, although unfavorable outcomes may be possible, they are not considered by our management to be probable and reasonably estimable. If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material. F-34 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Indemnifications and Certain Employment-Related Contingencies —In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our directors and certain of our officers. It 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. We have not recorded any liability for costs related to contingent indemnification obligations as of June 30, 2020. On December 31, 2017, we and Deepak Chopra, our Chief Executive Officer, entered into an amendment to Mr. Chopra's employment agreement that, among other things, provides for a $ 13.5 million bonus payment to Mr. Chopra on or within 45 days of January 1, 2024 contingent upon Mr. Chopra's continued employment with us through that date, subject to accelerated payout terms in the event of Mr. Chopra's death or disability. The bonus is recorded in the financial statements over the remaining term of the employment agreement and is included in other long-term liabilities. Legal Proceedings —In December 2017, a short seller released a report regarding our compliance with the FCPA. Following that report, we and certain of our executive officers have been named as defendants in several lawsuits in the District Court that were filed in December 2017 and February 2018. Each of the complaints closely tracks the allegations set forth in the short seller's report. All of the actions, which were consolidated by the District Court in March 2018 in an action captioned Arkansas Teacher Retirement System et al. v. OSI Systems, Inc. et al. , No. 17 cv 08841, allege violations of Sections 10(b) and 20(a) of the Exchange Act, relating to certain of our public statements and filings with the SEC, and seek damages and other relief based upon the allegations in the complaints. In April 2018 and March 2019, two shareholder derivative complaints were filed purportedly on behalf of the Company against certain members of our Board of Directors (as individual defendants), a former member of our Board of Directors, and a member of management. The derivative actions, which were consolidated by the District Court in November 2019 in an action captioned Kocen and Riley v. Chopra, et al. No. 18 CV 03371, allege, among other things, breach of fiduciary duties relating to the allegations contained in the above-mentioned short seller report and seek damages, restitution, injunctive relief, attorneys' and experts' fees, costs, expenses, and other unspecified relief. We believe that the actions are without merit and intend to defend them vigorously, and we expect to incur costs associated with defending against these actions. At this early stage of the litigations, the ultimate outcomes are uncertain and we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, if any, or their effect, if any, on our financial statements. The SEC and the DOJ are conducting an investigation of trading in our securities and have each subpoenaed information regarding trading by executives, directors, and employees, as well as our operations and disclosures in and around the time of certain trades. With respect to these trading related matters, in fiscal year 2018, we took action with respect to a senior level employee. At this time, we are unable to predict what, if any, action may be taken by the DOJ or SEC as a result of these trading related investigations, or any penalties or remedial measures these agencies may seek. We place a high priority on compliance with our anticorruption and securities trading policies and are cooperating with each of the government investigations. We are involved in various other claims and legal proceedings arising in the ordinary course of business. In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. We have not accrued for loss contingencies relating to any such matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to our company, the impact on our business, financial condition, results of operations and cash flows could be material. ​ F-35 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 12. STOCKHOLDERS’ EQUITY Stock Repurchase Program In March 2018, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares of Common Stock, which was completed during the quarter ended March 31, 2020. During fiscal 2018, 2019 and 2020, we repurchased 1,021,458 shares, 288,316 shares and 562,707 shares, respectively, of Common Stock under our then current programs. In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares of Common Stock. 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. As of June 30, 2020, 1,000,000 shares were available for repurchase under the program authorized in April 2020. In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program. ​ Dividends We have not paid any cash dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any cash dividends in the foreseeable future. Our Board of Directors will determine the payment of future cash dividends, if any. Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions. ​ 13. RELATED-PARTY TRANSACTIONS In 1994, we, together with an unrelated company, formed ECIL-Rapiscan Security Products Limited, a joint venture organized under the laws of India. We own a 36 % interest in the joint venture, our Chairman and Chief Executive Officer owns a 10.5 % interest, and our Executive Vice President and Director owns a 4.5 % ownership interest. Our initial investment was approximately $ 0.1 million. For each of the years ended June 30, 2018, 2019 and 2020 our equity earnings in the joint venture were less than $ 0.1 million. We, our Chairman and Chief Executive Officer and our Executive Vice President and Director collectively control less than 50 % of the board of directors voting power in the joint venture. As a result, we account for the investment under the equity method of accounting. The joint venture was formed for the purpose of the manufacture, assembly, service and testing of security and inspection systems and other products. Some of our subsidiaries are suppliers to the joint venture partner, which in turn manufactures and sells the resulting products. Sales to the joint venture partner for fiscal 2018, 2019 and 2020 were approximately $ 4.6 million, $ 4.0 million and $ 2.3 million, respectively. Receivables from the joint venture were $ 1.1 million and $ 0.3 million as of June 30, 2019 and 2020, respectively. ​ 14. EMPLOYEE BENEFIT PLANS Employee Retirement Savings Plans We have various qualified employee retirement savings plans. Participants can contribute certain amounts to the plans and we match a certain portion of employee contributions. We contributed approximately $ 6.3 million, $ 6.4 million and $ 6.5 million to the plans for the fiscal years ended June 30, 2018, 2019 and 2020, respectively. F-36 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Deferred Compensation Plan We have a deferred compensation plan, which meets the requirements for deferred compensation under Section 409A of the Internal Revenue Code. The plan provides that selected employees are eligible to defer up to 80 % of their salaries and up to 100 % of their bonuses. We may also make employer contributions to participant accounts in certain circumstances. The benefits under this plan are unsecured. Participants are generally eligible to receive payment of their vested benefit at the end of their elected deferral period or after termination of their employment for any reason or at a later date to comply with the restrictions of Section 409A. Discretionary company contributions and the related earnings are subject to a vesting schedule dependent upon years of service to us and, also, vest completely upon the participant’s disability or death while employed by us or immediately prior to a change of control. We made contributions of $ 0.5 million, for each of fiscal year 2018, 2019 and 2020. As of June 30, 2020, we held assets of $ 26.5 million and liabilities of $ 25.7 million related to this plan. Assets related to this plan are included in other assets and liabilities related to this plan are included in other long-term liabilities in the consolidated balance sheets. The plan liabilities include accrued employer contributions not yet funded to the plan. Employee Pension Plans We sponsor a number of qualified and nonqualified pension plans for our employees at certain locations. In accordance with accounting standards for employee pension and postretirement benefits, we fully recognize the overfunded or underfunded status of each of our defined benefit plans as an asset or liability in the consolidated balance sheets. The asset or liability equals the difference between the fair value of the plans’ assets and their benefit obligations. The liabilities associated with underfunded plans are classified as noncurrent, except to the extent the fair value of the plans’ assets is less than the plans’ estimated benefit payments over the next 12 months . We measure our pension and postretirement benefit plans’ assets and benefit obligations as of June 30. The following provides a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for fiscal years 2019 and 2020, and a statement of the funded status as of June 30, 2019 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 Change in Benefit Obligation ​ ​ ​ ​ ​ ​ Benefit obligation at beginning of year ​ $ 13,780 ​ $ 14,059 Translation adjustment ​ ( 166 ) ​ ( 155 ) Interest costs ​ 457 ​ 442 Service costs ​ ​ 223 ​ ​ — Amendment ​ ​ — ​ ​ 1,260 Actuarial (gain) loss ​ ( 82 ) ​ 770 Benefits paid ​ ( 153 ) ​ ( 151 ) Benefit obligation at end of year ​ 14,059 ​ 16,225 Change in Plan Assets ​ ​ ​ ​ ​ ​ Fair value of plan assets at beginning of year ​ 5,870 ​ 5,781 Translation adjustment ​ ( 183 ) ​ ( 156 ) Actual return on plan assets ​ 201 ​ ( 160 ) Benefits paid ​ ( 107 ) ​ ( 107 ) Fair value of plan assets at end of year ​ 5,781 ​ 5,358 Funded status and net amount recognized ​ $ ( 8,278 ) ​ $ ( 10,867 ) Amount recognized in consolidated balance sheets consists of: ​ ​ ​ ​ ​ ​ Investments ​ $ 1,034 ​ $ 226 Accrued pension liability ​ ( 9,312 ) ​ ( 11,093 ) Accumulated other comprehensive income ​ 1,019 ​ 3,424 ​ F-37 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 One of our defined benefit pension plans is considered a nonqualified plan, therefore we have funded a separate rabbi trust which comprises insurance company contracts with fair values of $ 10.6 million and $ 10.7 million as of June 30, 2019 and 2020, respectively. These amounts are not included in the fair value of plan assets in the table above. ​ The following table provides the net periodic benefit costs for the fiscal years ended June 30, (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 Net Periodic Benefit Costs ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest costs ​ $ 467 ​ $ 457 ​ $ 442 Service costs ​ ​ — ​ ​ 223 ​ ​ — Expected return on plan assets ​ ( 203 ) ​ ( 270 ) ​ ( 251 ) Amortization of prior service costs ​ 249 ​ 56 ​ ( 61 ) Recognized actuarial loss ​ 305 ​ 103 ​ 34 Net periodic benefit cost ​ $ 818 ​ $ 569 ​ $ 164 ​ Plan Assumptions ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 Weighted average assumptions at year-end: ​ ​ ​ ​ ​ Discount rate 3.2 % 2.7 % Expected return on plan assets 4.4 % 4.2 % Rate of compensation increase — % — % ​ The long term return on assets has been derived from the weighted average of assumed returns on each of the major asset categories. The weighted average is based on the actual proportion of each major asset class held, rather than a benchmark portfolio of assets. The expected returns for each major asset class have been derived from a combination of both historical market returns and current market data as well as the views of a range of investment managers. There is no assumed rate of compensation increase as most of the plan participants are retirees or no longer employed by OSI. ​ Plan Assets and Investment Policy ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal year ended ​ Fiscal year ended ​ ​ June 30, 2019 ​ June 30, 2020 ​ ​ Proportion of ​ Expected Rate ​ Proportion of ​ Expected Rate ​ Fair Value of Return Fair Value of Return Equity securities ​ 82 % 5.2 % 80 % 5.0 % Debt securities 17 % 1.0 % 19 % 1.0 % Cash 1 % 0.5 % 1 % 0.5 % Combined 100 % 4.4 % 100 % 4.2 % ​ The defined benefit plans’ assets are invested in a range of pooled investment funds that provide access to a diverse range of asset classes. The investment objective is to maximize the investment return over the long term without exposing the fund to an unnecessary level of risk. Within this objective, it is recognized that benefits will be secured by the purchase of annuities at the time of employee retirement. The benchmark is to hold assets in both equity and debt securities. The proportion in each investment class is not mandated and is allowed to fluctuate with market movements. The equity holdings are maintained in balanced funds under the control of investment managers. F-38 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 Day-to-day equities selection decisions are delegated to investment managers, although these are monitored against performance and risk targets. Due to the nature of the pooled funds, there are no significant holdings in any single company (greater than 5% of the total assets). The investment strategy is reviewed on a regular basis, based on the results of third-party liability studies. Projected Benefit Payments The following table reflects estimated benefits payments, based upon the same assumptions used to measure the benefit obligation and net pension cost, as of June 30, 2020 (in thousands): ​ ​ ​ ​ ​ Pension Benefits July 1, 2020 to June 30, 2021 ​ 176 July 1, 2021 to June 30, 2022 ​ 179 July 1, 2022 to June 30, 2023 ​ 200 July 1, 2023 to June 30, 2024 ​ 5,843 July 1, 2024 to June 30, 2025 ​ 1,393 July 1, 2025 to June 30, 2030 ​ 6,258 ​ Company Contribution As of June 30, 2020, our weighted average contribution rate is under 1 % of pensionable salaries. No significant company contributions are expected for fiscal 2021. ​ 15. SEGMENT INFORMATION We have determined that we operate in three identifiable industry segments: (a) security and inspection systems (Security division), (b) medical monitoring and diagnostic cardiology systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division). We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses; expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments. Both the Security and Healthcare divisions comprise primarily end-product businesses whereas the Optoelectronics and Manufacturing division primarily supplies components and subsystems to external OEM customers, as well as to the Security and Healthcare divisions. Sales between divisions are at transfer prices that approximate market values. All other accounting policies of the segments are the same as described in Note 1, Summary of Significant Accounting Policies. The following tables present the operations and identifiable assets by industry segment (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Eliminations Consolidated Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ External customer revenue ​ $ 690,001 ​ $ 189,387 ​ $ 209,898 ​ $ — ​ $ — ​ $ 1,089,286 Revenue between product segments ​ — ​ — ​ 44,587 ​ — ​ ( 44,587 ) ​ — Total revenues ​ $ 690,001 ​ $ 189,387 ​ $ 254,485 ​ $ — ​ ( 44,587 ) ​ $ 1,089,286 Income (loss) from operations ​ $ 84,106 ​ $ ( 14,609 ) ​ $ 22,024 ​ $ ( 35,030 ) ​ $ ( 583 ) ​ $ 55,908 Segments assets ​ $ 804,527 ​ $ 167,611 ​ $ 220,373 ​ $ 66,453 ​ $ ( 3,273 ) ​ $ 1,255,691 Capital expenditures ​ $ 14,479 ​ $ 1,540 ​ $ 3,286 ​ $ 23,893 ​ $ — ​ $ 43,198 Depreciation and amortization ​ $ 55,630 ​ $ 4,910 ​ $ 7,766 ​ $ 1,448 ​ $ — ​ $ 69,754 ​ F-39 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Eliminations Consolidated Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ External customer revenue ​ $ 747,550 ​ $ 188,477 ​ $ 246,088 ​ $ — ​ $ — ​ $ 1,182,115 Revenue between product segments ​ — ​ — ​ 42,542 ​ — ​ ( 42,542 ) ​ — Total revenues ​ $ 747,550 ​ $ 188,477 ​ $ 288,630 ​ $ — ​ ( 42,542 ) ​ $ 1,182,115 Income (loss) from operations ​ $ 97,426 ​ $ 12,277 ​ $ 29,519 ​ $ ( 30,598 ) ​ $ ( 850 ) ​ $ 107,774 Segments assets ​ $ 793,810 ​ $ 157,639 ​ $ 237,851 ​ $ 79,498 ​ $ ( 3,934 ) ​ $ 1,264,864 Capital expenditures ​ $ 15,830 ​ $ 1,372 ​ $ 4,760 ​ $ 5,450 ​ $ — ​ $ 27,412 Depreciation and amortization ​ $ 39,788 ​ $ 5,426 ​ $ 9,269 ​ $ 1,751 ​ $ — ​ $ 56,234 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Division Division Division Corporate Eliminations Consolidated Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ External customer revenue ​ $ 742,043 ​ $ 185,322 ​ $ 238,679 ​ $ — ​ $ — ​ $ 1,166,044 Revenue between product segments ​ — ​ — ​ 45,149 ​ — ​ ( 45,149 ) ​ — Total revenues ​ $ 742,043 ​ $ 185,322 ​ $ 283,828 ​ $ — ​ ( 45,149 ) ​ $ 1,166,044 Income (loss) from operations ​ $ 90,063 ​ $ 15,766 ​ $ 30,566 ​ $ ( 31,630 ) ​ $ 122 ​ $ 104,887 Segments assets ​ $ 758,054 ​ $ 208,857 ​ $ 232,408 ​ $ 109,178 ​ $ ( 39,956 ) ​ $ 1,268,541 Capital expenditures ​ $ 8,648 ​ $ 1,404 ​ $ 6,291 ​ $ 4,045 ​ $ — ​ $ 20,388 Depreciation and amortization ​ $ 34,907 ​ $ 4,390 ​ $ 8,785 ​ $ 1,676 ​ $ — ​ $ 49,758 ​ The following tables present the revenues and identifiable assets by geographical area (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 ​ ​ External ​ Intersegment ​ Total ​ Long-lived ​ Long-lived ​ revenues revenues Consolidated tangible assets assets Geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 552,677 ​ $ 9,221 ​ $ 561,898 ​ $ 103,582 ​ $ 457,516 Mexico ​ 106,472 ​ — ​ 106,472 ​ 12,143 ​ 12,143 Other Americas ​ 25,060 ​ — ​ 25,060 ​ 4,027 ​ 29,491 Total Americas ​ 684,209 ​ 9,221 ​ 693,430 ​ 119,752 ​ ​ 499,150 United Kingdom ​ 231,909 ​ 162 ​ 232,071 ​ 21,916 ​ ​ 71,126 Other Europe, Middle East and Africa ​ 25,694 ​ — ​ 25,694 ​ 9,993 ​ ​ 13,458 Total EMEA ​ 257,603 ​ 162 ​ 257,765 ​ 31,909 ​ ​ 84,584 Asia-Pacific ​ 147,474 ​ 35,204 ​ 182,678 ​ 16,512 ​ ​ 18,653 Eliminations ​ — ​ ( 44,587 ) ​ ( 44,587 ) ​ N/A ​ N/A Total ​ $ 1,089,286 ​ $ — ​ $ 1,089,286 ​ $ 168,173 ​ $ 602,387 ​ F-40 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FOR THE THREE YEARS ENDED JUNE 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ ​ External ​ Intersegment ​ Total ​ Long-lived ​ Long-lived ​ revenues revenues Consolidated tangible assets assets Geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 565,316 ​ $ 10,107 ​ $ 575,423 ​ $ 117,414 ​ $ 476,314 Mexico ​ 71,225 ​ — ​ 71,225 ​ 436 ​ 436 Other Americas ​ 45,804 ​ — ​ 45,804 ​ 3,178 ​ 27,039 Total Americas ​ 682,345 ​ 10,107 ​ 692,452 ​ 121,028 ​ ​ 503,789 United Kingdom ​ 292,297 ​ 214 ​ 292,511 ​ 30,282 ​ ​ 80,896 Other Europe, Middle East and Africa ​ 30,484 ​ — ​ 30,484 ​ 8,833 ​ ​ 12,237 Total EMEA ​ 322,781 ​ 214 ​ 322,995 ​ 39,115 ​ ​ 93,133 Asia-Pacific ​ 176,989 ​ 32,221 ​ 209,210 ​ 19,763 ​ ​ 23,046 Eliminations ​ — ​ ( 42,542 ) ​ ( 42,542 ) ​ N/A ​ N/A Total ​ $ 1,182,115 ​ $ — ​ $ 1,182,115 ​ $ 179,906 ​ $ 619,968 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ External ​ Intersegment ​ Total ​ Long-lived ​ Long-lived ​ revenues revenues Consolidated tangible assets assets Geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 571,134 ​ $ 16,515 ​ $ 587,649 ​ $ 118,322 ​ $ 475,856 Mexico ​ 66,626 ​ — ​ 66,626 ​ 974 ​ 974 Other Americas ​ 45,896 ​ — ​ 45,896 ​ 8,539 ​ 29,551 Total Americas ​ 683,656 ​ 16,515 ​ 700,171 ​ 127,835 ​ ​ 506,381 United Kingdom ​ 268,940 ​ 529 ​ 269,469 ​ 21,823 ​ ​ 75,382 Other Europe, Middle East and Africa ​ 46,099 ​ — ​ 46,099 ​ 7,252 ​ ​ 10,611 Total EMEA ​ 315,039 ​ 529 ​ 315,568 ​ 29,075 ​ ​ 85,993 Asia-Pacific ​ 167,349 ​ 28,105 ​ 195,454 ​ 23,972 ​ ​ 27,414 Eliminations ​ — ​ ( 45,149 ) ​ ( 45,149 ) ​ N/A ​ N/A Total ​ $ 1,166,044 ​ $ — ​ $ 1,166,044 ​ $ 180,882 ​ $ 619,788 ​ Pursuant to Accounting Standards Codification 280 “Segment Reporting,” external revenues are attributed to individual countries based upon the location of our selling entity. * * * * * * ​ ​ ​ F-41 Table of Contents ​ SUPPLEMENTARY DATA UNAUDITED QUARTERLY RESULTS The following tables present unaudited quarterly financial information for the four quarters ended June 30, 2019 and 2020 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ September 30, ​ December 31, ​ March 31, ​ June 30, ​ 2018 2018 2019 2019 ​ ​ (Unaudited) Revenues ​ $ 266,249 ​ $ 303,205 ​ $ 304,284 ​ $ 308,377 Costs of goods sold ​ 170,336 ​ 192,861 ​ 192,968 ​ 195,355 Gross profit ​ 95,913 ​ 110,344 ​ 111,316 ​ 113,022 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 61,707 ​ 67,097 ​ 67,278 ​ 66,402 Research and development ​ 13,753 ​ 12,805 ​ 13,695 ​ 16,256 Impairment, restructuring and other charges ​ 4,196 ​ (1,265) ​ (1,777) ​ 2,674 Total operating expenses ​ 79,656 ​ 78,637 ​ 79,196 ​ 85,332 Income from operations ​ 16,257 ​ 31,707 ​ 32,120 ​ 27,690 Interest and other expense, net ​ (5,332) ​ (5,620) ​ (5,595) ​ (5,063) Income before income taxes ​ 10,925 ​ 26,087 ​ 26,525 ​ 22,627 Provision for income taxes ​ (1,523) ​ (6,980) ​ (6,899) ​ (5,966) Net income ​ $ 9,402 ​ $ 19,107 ​ $ 19,626 ​ $ 16,661 Basic earnings per common share ​ $ 0.52 ​ $ 1.06 ​ $ 1.09 ​ $ 0.92 Diluted earnings per common share ​ $ 0.50 ​ $ 1.03 ​ $ 1.05 ​ $ 0.89 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ September 30, ​ December 31, ​ March 31, ​ June 30, ​ 2019 2019 2020 2020 ​ ​ (Unaudited) Revenues ​ $ 290,852 ​ $ 305,342 ​ $ 292,883 ​ $ 276,967 Costs of goods sold ​ 191,641 ​ 194,569 ​ 183,776 ​ 175,419 Gross profit ​ 99,211 ​ 110,773 ​ 109,107 ​ 101,548 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 62,177 ​ 63,902 ​ 65,576 ​ 60,306 Research and development ​ 14,246 ​ 14,881 ​ 15,358 ​ 12,823 Impairment, restructuring and other charges ​ (2,099) ​ (929) ​ 4,548 ​ 4,963 Total operating expenses ​ 74,324 ​ 77,854 ​ 85,482 ​ 78,092 Income from operations ​ 24,887 ​ 32,919 ​ 23,625 ​ 23,456 Interest and other expense, net ​ (4,736) ​ (4,844) ​ (4,706) ​ (4,479) Income before income taxes ​ 20,151 ​ 28,075 ​ 18,919 ​ 18,977 Provision for income taxes ​ 592 ​ (7,089) ​ 639 ​ (5,012) Net income ​ $ 20,743 ​ $ 20,986 ​ $ 19,558 ​ $ 13,965 Basic earnings per common share ​ $ 1.14 ​ $ 1.15 ​ $ 1.08 ​ $ 0.78 Diluted earnings per common share ​ $ 1.10 ​ $ 1.12 ​ $ 1.06 ​ $ 0.76 ​ ​ F-42 Table of Contents ​ INDEX TO EXHIBITS ​ No. EXHIBIT DESCRIPTION ​ ​ ​ 3.1 ​ Certificate of Incorporation of OSI Systems, Inc. (1) 3.2 ​ Bylaws of OSI Systems, Inc. (1) 4.1 ​ Form of Common Stock Certificate (1) 4.2 ​ Indenture (including the form of Note) related to the 1.25% Convertible Senior Notes due 2022, dated as of February 22, 2017, between OSI Systems, Inc. and Branch Banking and Trust Company, as trustee (14) 4.3 ​ Form of 1.25% Convertible Senior Note due 2022 (included in Exhibit 4.2) (14) 4.4* ​ Description of Capital Stock 10.1† ​ Amended and Restated OSI Systems, Inc. Deferred Compensation Plan (2) 10.2† ​ OSI Systems, Inc. Nonqualified Defined Benefit Plan (3) 10.3† ​ Amended and Restated OSI Systems, Inc. 2008 Employee Stock Purchase Plan (4) 10.4† ​ First Amendment to Amended and Restated OSI Systems, Inc. 2008 Employee Stock Purchase Plan (17) 10.5† ​ Form of Indemnification Agreement for Directors and Executive Officers of OSI Systems, Inc. (5) 10.6 ​ Sixth Amendment to Credit Agreement dated April 23, 2019 between Wells Fargo Bank, N.A. and OSI Systems, Inc. (15) 10.7† ​ Amended and Restated 2006 Equity Participation Plan of OSI Systems, Inc. (6) 10.8† ​ Employment Agreement effective as of January 1, 2012 between Deepak Chopra and OSI Systems, Inc. (7) 10.9† ​ Amendment to Employment Agreement effective as of July 1, 2015 between Deepak Chopra and OSI Systems, Inc. (12) 10.10† ​ Second Amendment to Employment Agreement effective as of December 31, 2017 by and between Deepak Chopra and OSI Systems, Inc. (8) 10.11† ​ Employment Agreement effective as of January 1, 2012 between Alan Edrick and OSI Systems, Inc. (7) 10.12† ​ Amendment to Employment Agreement effective as of July 1, 2015 between Alan Edrick and OSI Systems, Inc. (12) 10.13† ​ Employment Agreement effective as of January 1, 2012 between Ajay Mehra and OSI Systems, Inc. (7) 10.14† ​ Amendment to Employment Agreement effective as of May 1, 2015 between Ajay Mehra and OSI Systems, Inc. (13) 10.15† ​ Second Amendment to Employment Agreement effective April 29, 2019 between Ajay Mehra and OSI Systems, Inc. (18) 10.16† ​ Employment Agreement effective as of January 1, 2012 between Victor Sze and OSI Systems, Inc. (7) 10.17† ​ Amendment to Employment Agreement effective as of July 1, 2015 between Victor Sze and OSI Systems, Inc. (12) 10.18† ​ Second Amendment to Employment Agreement effective April 29, 2019 between Victor Sze and OSI Systems, Inc. (18) 10.19† ​ Offer Letter dated July 3, 2017 between Malcolm Maginnis and OSI Systems, Inc. (16) 10.20† ​ Amended and Restated Retirement Benefit Award Agreement effective as of December 31, 2017 by and between Deepak Chopra and OSI Systems, Inc. (8) 10.21†* ​ First Amendment to Amended and Restated Retirement Benefit Award Agreement effective as of June 19, 2020 by and between Deepak Chopra and OSI Systems, Inc. 10.22†* ​ Second Amendment to Amended and Restated Retirement Benefit Award Agreement effective as of August 19, 2020 by and between Deepak Chopra and OSI Systems, Inc. 10.23† ​ Amended and Restated OSI Systems, Inc. 2012 Incentive Award Plan (9) 10.24† ​ Form of Restricted Stock Award Agreement (10) 10.25† ​ Form of Restricted Stock Unit Award Agreement (10) 10.26† ​ Form of Stock Option Agreement (10) 14.1 ​ OSI Systems, Inc. Code of Ethics and Conduct effective May 23, 2016 (11) 21.1* ​ Subsidiaries of the Company 23.1* ​ Consent of Independent Registered Public Accounting Firm 24.1* ​ Power of Attorney (included on the signature page of this Form 10-K) 31.1* ​ Certification Pursuant to Section 302 31.2* ​ Certification Pursuant to Section 302 32.1* ​ Certification Pursuant to Section 906 32.2* ​ Certification Pursuant to Section 906 101.1 ​ The following financial information from the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2020 formatted in XBRL (eXtensible Business Reporting Language) as follows: ​ ​ (i) the consolidated balance sheets ​ ​ (ii) the consolidated statements of operations ​ ​ (iii) the consolidated statements of comprehensive income ​ ​ (iv) the consolidated statements of stockholders’ equity ​ ​ (v) the consolidated statements of cash flows ​ Table of Contents ​ No. EXHIBIT DESCRIPTION ​ ​ ​ ​ ​ (vi) the notes to the consolidated financial statements, tagged in summary and detail 104 ​ Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) * Filed herewith † Denotes a management contract or compensatory plan or arrangement. (1) Previously filed with our Current Report on Form 8-K filed on March 8, 2010. (2) Previously filed with our Quarterly Report on Form 10-Q filed on May 2, 2014. (3) Previously filed with our Current Report on Form 8-K filed on October 10, 2008. (4) Previously filed with our Quarterly Report on Form 10-Q filed on October 24, 2014. (5) Previously filed with our Annual Report on Form 10-K filed on August 27, 2010. (6) Previously filed with our Current Report on Form 8-K filed on December 1, 2010. (7) Previously filed with our Current Report on Form 8-K filed on April 6, 2012. (8) Previously filed with our Current Report on Form 8-K filed on January 5, 2018. (9) Previously filed with our Proxy Statement on Schedule 14A filed on October 23, 2017. (10) Previously filed with our Registration Statement on Form S-8 filed on August 16, 2013. (11) Previously filed with our Current Report on Form 8-K filed on May 23, 2016. (12) Previously filed with our Quarterly Report on Form 10-Q filed on January 28, 2016. (13) Previously filed with our Quarterly Report on Form 10-Q filed on October 30, 2015. (14) Previously filed with our Current Report on Form 8-K filed on February 22, 2017. (15) Previously filed with our Current Report on Form 8-K filed on April 23, 2019. (16) Previously filed with our Quarterly Report on Form 10-Q filed on October 26, 2018. (17) Previously filed with our Proxy Statement on Schedule 14A filed on October 21, 2016. (18) Previously filed with our Quarterly Report on Form 10-Q filed on May 2, 2019. ​ ​ ​ Table of Contents SIGNATURES Pursuant 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. ​ ​ OSI SYSTEMS, INC. (Registrant) ​ ​ Date: August 21, 2020 By: /s/ ALAN EDRICK Alan Edrick, Executive Vice President & Chief Financial Officer ​ POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Deepak Chopra, Alan Edrick and Victor Sze, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable OSI Systems, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission in connection therewith, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto. Pursuant 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. ​ ​ ​ Name Title Date ​ ​ ​ ​ ​ /s/ DEEPAK CHOPRA Deepak Chopra ​ Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ ALAN EDRICK Alan Edrick ​ Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ WILLIAM F. BALLHAUS, JR. William F. Ballhaus, Jr. ​ Director ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ GERALD CHIZEVER Gerald Chizever ​ Director ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ STEVEN C. GOOD Steven C. Good ​ Director ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ JAMES B. HAWKINS James B. Hawkins ​ Director ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ MEYER LUSKIN Meyer Luskin ​ Director ​ August 21, 2020 ​ ​ ​ ​ ​ /s/ KELLI BERNARD Kelli Bernard ​ Director ​ August 21, 2020 ​ ​ II-2 ​