What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-05-01 · 210 added, 345 removed, 387 unchanged (59% of the section changed)

4 unchanged sentences

(amounts in thousands, except share amounts and par value)

September 30,

CURRENT ASSETS:

23 unchanged sentences

Common stock, $ 0.001 par value— 100,000,000 shares authorized;

issued and outstanding , 18,167,020 shares at June 30, 2019 and 18,010,625 shares at March 31, 2020

issued and outstanding , 18,011,982 shares at June 30, 2020 and 17,912,541 shares at September 30, 2020

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Net revenues:

18 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Other comprehensive income (loss):

7 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended March 31, 2019

Comprehensive

Balance—December 31, 2018

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—March 31, 2019

Three Months Ended March 31, 2020

Comprehensive

Balance—December 31, 2019

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—March 31, 2020

Nine Months Ended March 31, 2019

Three Months Ended September 30, 2019

Comprehensive

7 unchanged sentences

Other comprehensive loss

Balance—March 31, 2019

Nine Months Ended March 31, 2020

Balance—September 30, 2019

Three Months Ended September 30, 2020

Comprehensive

6 unchanged sentences

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—March 31, 2020

Other comprehensive income

Balance—September 30, 2020

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Nine Months Ended March 31,

Three Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Amortization of debt discount and issuance costs

Impairment charges

Provision (benefit) for loss on accounts receivable

Changes in operating assets and liabilities—net of business acquisitions:

4 unchanged sentences

Advances from customers

Deferred revenue

Net cash provided by operating activities

1 unchanged sentence

Acquisition of property and equipment

Acquisition of businesses, net of cash acquired

Acquisition of intangible and other assets

Purchases of certificates of deposit

Proceeds from maturities of certificates of deposit

Acquisition of business, net of cash acquired

Payments for intangible and other assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings on bank lines of credit

Net borrowings (repayments) on bank lines of credit

Proceeds from long-term debt

16 unchanged sentences

Basis of Presentation

The condensed consolidated financial statements include the accounts of OSI Systems, Inc.

2 unchanged sentences

The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations applicable to interim unaudited financial statements.

Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements.

Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements.

1 unchanged sentence

These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC.

The results of operations for the three and nine months ended March 31, 2020 are not necessarily indicative of the operating results to be expected for the full 2020 fiscal year or any future periods.

The results of operations for the three months ended September 30, 2020 are not necessarily indicative of the operating results to be expected for the full 2021 fiscal year or any future periods.

Use of Estimates

7 unchanged sentences

Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method.

The underlying equity component of the 1.25 % convertible senior notes due 2022 (the “Notes”) discussed in Note 6 to the condensed consolidated financial statements will not have a net impact on diluted earnings per share unless the average price of our common stock exceeds the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion.

There was no dilutive effect of the Notes for the three and nine months ended March 31, 2019 and 2020.

The underlying equity component of the 1.25 % convertible senior notes due 2022 (the “Notes”) discussed in Note 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion.

The dilutive effect of the Notes is included in the calculation below for the three months ended September 30, 2019.

There was no dilutive effect of the Notes for the three months ended September 30, 2020.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Net income available to common stockholders

1 unchanged sentence

Dilutive effect of equity awards

Dilutive effect of the Notes

Weighted average shares outstanding—diluted

4 unchanged sentences

We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.

Our cash and cash equivalents totaled $101.0 million at March 31, 2020.

Our cash and cash equivalents totaled $ 76.9 million at September 30, 2020.

Of this amount, approximately 76 % was held by our foreign subsidiaries and subject to repatriation tax considerations.

These foreign funds were held primarily by our subsidiaries in Singapore, the United Kingdom, Malaysia, Mexico, Canada and Australia and to a lesser extent in Germany, India, and Albania among other countries.

These foreign funds were held primarily by our subsidiaries in the United Kingdom, Malaysia, Canada, Singapore, India and Australia and to a lesser extent in Mexico, Germany and Albania among other countries.

We have cash holdings in financial institutions that exceed insured limits for such institutions;

however, we mitigate this risk by utilizing high credit quality financial institutions throughout the world.

however, we mitigate this risk by utilizing international financial institutions of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable and debt instruments.

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments and foreign currency forward contracts.

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, as the interest rates of these instruments are variable or comparable to current rates for financing available to us.

The fair values of our foreign currency forward contracts were not significant as of September 30, 2020.

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.

The "Level 1"

category includes assets and liabilities measured at quoted prices in active markets for identical assets and liabilities.

The “Level 2"

category includes assets and liabilities measured from observable inputs other than quoted market prices.

The "Level 3"

category includes assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement.

As of June 30, 2019 and March 31, 2020, there were no assets in the "Level 1"

and "Level 3"

The Level 1 category includes assets and liabilities measured at quoted prices in active markets for identical assets and liabilities.

The Level 2 category includes assets and liabilities measured from observable inputs other than quoted market prices.

The Level 3 category includes assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement.

Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the Level 3 category for valuation purposes.

1 unchanged sentence

June 30, 2020

March 31, 2020

September 30, 2020

Insurance company contracts

Contingent consideration

Goodwill Impairment

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 during our second fiscal 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 all three reporting units are less than their carrying amounts, including goodwill.

Thus, we have determined that there is no goodwill impairment for any of the three reporting units.

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 users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

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 the 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.

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 amount of consideration 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 the contract which may contain one or more performance obligations.

In the event that customers are permitted to terminate such arrangements, the underlying contract typically requires payment by the customer 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 11 to our condensed consolidated financial statements 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 the 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.

Contract assets and liabilities were as follows (in thousands):

Contract Assets:

Unbilled revenue

Contract Liabilities:

Advances from customers

Deferred revenue—current

Deferred revenue—long-term

Contract assets increased during the nine months ended March 31, 2020 primarily due to satisfaction of performance obligations for explosive detection systems and cargo and vehicle inspection systems in our Security division which have not yet been billed to customers.

The net decrease in contract liabilities was primarily due to satisfaction of performance obligations and application of payments against customer billings on cargo and vehicle system contracts in our Security division.

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 March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 178.3 million.

We expect to recognize revenue on approximately 70 % of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter.

During the nine months ended March 31, 2020, we recognized revenue of $ 70.3 million from contract liabilities existing at the beginning of the period.

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.

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 condensed consolidated financial statements.

The components of operating lease expense were as follows (in thousands):

Three Months Ended

Nine Months Ended

March 31, 2020

Operating lease cost

Variable lease cost

Short-term lease cost

Supplemental balance sheet assets and liabilities related to operating leases were as follows (in thousands):

Balance Sheet Category

March 31, 2020

Operating lease ROU assets, net

Operating lease liabilities, current portion

Other accrued expenses and current liabilities

Operating lease liabilities, long-term

Other long-term liabilities

Total operating lease liabilities

Weighted average remaining lease term

Weighted average discount rate

Supplemental cash flow information related to operating leases was as follows (in thousands):

Three Months Ended

Nine Months Ended

March 31, 2020

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

Maturities of operating lease liabilities under ASC 842 (defined below) at March 31, 2020 were as follows (in thousands):

March 31, 2020

Less than one year

Imputed interest

Total lease liabilities

Maturities of minimum operating lease liabilities under non-cancelable leases under ASC 840 (defined below) at June 30, 2019 were as follows (in thousands):

June 30, 2019

Less than one year

Total lease liabilities

Recently Adopted Accounting Pronouncement

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 classified as either financing or operating leases.

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 Adoption

Balance Sheet

June 30, 2019

Other accrued expenses and current liabilities

Other long-term liabilities

The adoption of the new lease accounting guidance did not have a material impact on the condensed consolidated statement of operations or the condensed consolidated statement of cash flows for the nine months ended March 31, 2020.

Recently Issued Accounting Pronouncements Not Yet Adopted

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.

ASU 2019-12 is effective for publicly-traded business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods.

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.

Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts.

These forward contracts are utilized to partially mitigate certain balance sheet exposures and used as a net investment hedge for a foreign subsidiary to protect against potential changes resulting from short-term foreign currency fluctuations.

These contracts have original maturities of up to three months.

We do not use hedging instruments for speculative purposes.

The net investment hedge has been designated as a hedge instrument and accounted for under ASC 815 “Derivatives and Hedging” (ASC 815).

Hedge effectiveness is assessed using the spot method, consistent with guidance in ASC 815 whereby the change in fair value of the forward contract is recorded in the same manner as the related currency translation adjustments, within other comprehensive income, as the hedging instrument is expected to be fully effective unless the amount hedged exceeds the net investment in the foreign operation, or the foreign operation is liquidated.

We initiated the net investment hedge during the three months ended September 30, 2020 and the amount recorded in other comprehensive income was not significant for such period.

The net gains or losses from the foreign currency forward contracts for balance sheet exposures, which are not designated as hedge instruments, are reported in the consolidated income statement immediately.

We initiated these forward contracts during the three months ended September 30, 2020 and the amounts reported in the consolidated income statement were not significant for such period.

The fair value of our forward foreign exchange contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term.

Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities.

As of September 30, 2020 we held foreign currency forward contracts with notional amounts totalling $ 37.5 million.

Unrealized gains and losses from the forward currency forward contracts as of September 30, 2020 were not significant.

There were no derivative instruments as of June 30, 2020.

Recently Adopted Accounting Pronouncements

Retirement Benefit Plans

In August 2018, the FASB issued authoritative guidance under ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General:

In August 2018, the FASB issued authoritative guidance under Accounting Standards Update (“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.

We are currently evaluating the potential impact of the adoption of this guidance on our consolidated financial statements.

We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our disclosures in the consolidated financial statements.

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 non-cancellable 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.

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 adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 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.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates.

For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met.

Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met.

Modifications to debt agreements for a change in the reference interest rate will be accounted for by prospectively adjusting the effective interest rate.

The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates, however the adoption of this new guidance for modifications to contracts, if any, is not expected to have a significant impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 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 by clarifying and amending existing guidance for income taxes and related topics.

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.

Business Combinations

7 unchanged sentences

Fiscal Year 2021 Business Acquisition

In February 2020, we (through our Optoelectronics and Manufacturing division) acquired a privately-held manufacturing business for $ 3.35 million, plus up to $ 1.65 million in potential contingent consideration, which may be earned over a three-year period.

The acquisition was financed with cash on hand.

The goodwill recognized for this business is deductible for income tax purposes.

Fiscal Year 2019 Business Acquisitions

In January 2019, we (through our Security division) acquired a privately held sales and services company.

The acquisition was financed with cash on hand and was in an amount determined to be insignificant by management.

In August 2018, we (through our Security division) acquired a privately held services company for approximately $ 0.8 million, plus up to approximately $ 5 million in potential contingent consideration, which may be earned over the five-year period after the acquisition.

The acquisition was financed with cash on hand.

The goodwill recognized for this business is not deductible for income tax purposes.

In July 2018, we (through our Optoelectronics and Manufacturing division) acquired an optoelectronics solutions business for $ 17.5 million.

The acquisition was financed with cash on hand and borrowings under our revolving bank line of credit.

In July 2020 we (through our Healthcare division) acquired a privately-held software development company for $ 3.0 million, plus up to $ 12.0 million in potential contingent consideration.

The goodwill recognized for this business is deductible for income tax purposes.

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.

This acquisition was financed with available cash on hand.

This business acquisition was not material to our consolidated financial statements.

Accordingly, pro-forma historical results of operations and certain other disclosures related to this business have not been presented.

Balance Sheet Details

The following tables provide details of selected balance sheet accounts (in thousands):

September 30,

Accounts receivable, net

1 unchanged sentence

Less allowance for doubtful accounts

September 30,

Raw materials

1 unchanged sentence

Finished goods

September 30,

Property and equipment, net

1 unchanged sentence

Leasehold improvements

Equipment and tooling

Furniture and fixtures

Computer equipment

Equipment, furniture and fixtures

Computer software

3 unchanged sentences

Property and equipment, net

Depreciation and amortization expense for property and equipment was $ 5.1 million and $ 5.4 million for the three months ended March 31, 2019 and 2020, respectively, and $ 15.4 million and $ 15.9 million for the nine months ended March 31, 2019 and 2020, respectively.

Depreciation and amortization expense for property and equipment was $ 5.1 million and $ 5.2 million for the three months ended September 30, 2019 and 2020, respectively.

Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2020 are as follows (in thousands):

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2020 were as follows (in thousands):

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of March 31, 2020

Balance as of September 30, 2020

Intangible assets consisted of the following (in thousands):

June 30, 2020

March 31, 2020

September 30, 2020

Amortizable assets:

5 unchanged sentences

Total intangible assets

Amortization expense related to intangible assets was $ 5.4 million and $ 4.9 million for the three-month periods ended March 31, 2019 and 2020, respectively.

For the nine months ended March 31, 2019 and 2020, amortization expense related to intangible assets was $ 16.3 million and $ 14.3 million, respectively.

At March 31, 2020, the estimated future amortization expense for intangible assets was as follows (in thousands):

Amortization expense related to intangible assets was $ 4.9 million and $ 4.8 million for the three-month periods ended September 30, 2019 and 2020, respectively.

At September 30, 2020, the estimated future amortization expense for intangible assets was as follows (in thousands):

2021 (remaining 9 months)

Thereafter, including assets that have not yet begun to be amortized

Software development costs for software products incurred before establishing technological feasibility are charged to operations.

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Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above.

For the three months ended March 31, 2019 and 2020, we capitalized software development costs in the amounts of $ 0.8 million and $ 4.5 million, respectively.

For the nine months ended March 31, 2019 and 2020, we capitalized software development costs in the amounts of $ 1.8 million and $ 7.7 million, respectively.

For the three months ended September 30, 2019 and 2020, we capitalized software development costs in the amounts of $ 1.3 million and $ 4.1 million, respectively.

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.

When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheet.

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 under 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.

Contract assets and liabilities were as follows (in thousands):

September 30,

Contract Assets:

Unbilled revenue

Contract Liabilities:

Advances from customers

Deferred revenue—current

Deferred revenue—long-term

Contract assets increased during the three months ended September 30, 2020 primarily due to satisfaction of performance obligations for cargo and vehicle inspection systems in our Security division which have not yet been billed to customers.

The increase in contract liabilities was primarily due to receipt of contract deposits and additional performance obligations in our Security division.

Remaining Performance Obligations .

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 297.6 million.

We expect to recognize revenue on approximately 51 % of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter.

During the three months ended September 30, 2020, we recognized revenue of $ 19.1 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

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.

The components of operating lease expense were as follows (in thousands):

Three Months Ended September 30,

Operating lease cost

Variable lease cost

Short-term lease cost

Supplemental disclosures related to operating leases were as follows (in thousands):

Balance Sheet Category

June 30, 2020

September 30, 2020

Operating lease ROU assets, net

Operating lease liabilities, current portion

Other accrued expenses and current liabilities

Operating lease liabilities, long-term

Other long-term liabilities

Total operating lease liabilities

Weighted average remaining lease term

Weighted average discount rate

Supplemental cash flow information related to operating leases was as follows (in thousands):

Three Months Ended September 30,

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

Maturities of operating lease liabilities at September 30, 2020 were as follows (in thousands):

September 30, 2020

Less than one year

imputed interest

Total lease liabilities

Impairment, 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.

During the three and nine months ended March 31, 2020, we abandoned a non-core product line in our Healthcare division which resulted in the write-off of assets, including intangible and fixed assets, totaling $ 3.3 million as we determined that these assets had no value and were permanently impaired.

In addition, we continued to recover certain legal costs related to class action litigation and government investigations through insurance reimbursement.

We also incurred additional legal fees related to these matters as well as restructuring charges by the divisions as noted in the tables below.

This resulted in a net expense of $ 4.5 million and $ 1.5 million during the three and nine months ended March 31, 2020, respectively.

During the three and nine months ended March 31, 2019, we recovered certain legal costs related to class action litigation and government investigations through insurance reimbursements.

We also incurred additional legal fees related to these matters as well as restructuring charges by the divisions as noted in the tables below.

This resulted in a net (benefit) expense of $( 1.8 ) million and $ 1.2 million for the three and nine months ended March 31, 2019, respectively.

During the quarter ended September 30, 2019, we recognized a net benefit of $ 2.1 million primarily related to reimbursements from our insurance carriers for covered legal charges, partially offset by additional legal fees related to class action litigation and government investigations.

During the three months ended September 30, 2020, we commenced exit activities associated with an expired turnkey contract in Mexico whereby we incurred non-recurring charges totaling $ 6.9 million comprised of exit costs of $ 2.5 million for employee terminations, facility closure and other exit costs of $ 1.1 million, direct transaction costs of $ 2.7 million and impairment of a right-of-use asset of $ 0.6 million.

We also conducted other operational efficiency activites which resulted in employee termination costs of $ 1.4 million and other costs of $ 0.1 million.

The following tables summarize impairment, restructuring and other charges (benefit), net for the periods set forth below (in thousands):

Three Months Ended March 31, 2019

Optoelectronics and

Manufacturing

Security Division

Legal costs (recoveries), net

Three Months Ended March 31, 2020

Optoelectronics and

Manufacturing

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs (recoveries), net

Total expensed

Nine Months Ended March 31, 2019

Three Months Ended September 30, 2019

Optoelectronics and

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Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs (recoveries), net

Total expensed

Nine Months Ended March 31, 2020

Employee termination costs (benefit)

Legal recoveries, net

Three Months Ended September 30, 2020

Optoelectronics and

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Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation

Legal costs (recoveries), net

Legal recoveries, net

Total expensed

The changes in the accrued liability for restructuring and other charges for the nine-month period ended March 31, 2020 were as follows (in thousands):

The changes in the accrued liability for restructuring and other charges for the three-month period ended September 30, 2020 were as follows (in thousands):

Consolidation

Legal Costs and

related Costs

Balance as of June 30, 2020

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Payments, adjustments and reimbursements, net

Balance as of March 31, 2020

Balance as of September 30, 2020

Revolving Credit Facility

Under our revolving credit facility, the aggregate committed amount available to us is $ 535 million.

The credit facility matures in April 2024.

We have a revolving credit facility with an aggregate committed amount of up to $ 535 million which matures in 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 March 31, 2020 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility).

Borrowings under this facility bear interest at LIBOR plus a margin of 1.0 % as of September 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 is expected to be discontinued by the end of calendar year 2021.

The terms of our revolving credit facility allow for a replacement rate if the LIBOR index is discontinued.

Letters of credit reduce the amount available to borrow by their face value amounts.

The unused portion of the facility bears a commitment fee of 0.10 % as of March 31, 2020 (which fee can range from 0.10 % to 0.25 % based on our consolidated net leverage ratio as defined in the credit facility).

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 September 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 March 31, 2020, there was $ 95.0 million of borrowings outstanding under the revolving credit facility and $ 48.1 million outstanding under the letters of credit sub facility.

The amount available to borrow under the credit facility as of March 31, 2020 was $ 391.9 million.

The credit facility contains various representations and warranties, affirmative, negative and financial covenants and events of default.

As of September 30, 2020, there was $ 51.0 million of borrowings outstanding under the revolving credit facility and $ 75.4 million outstanding under the letters of credit sub facility.

The amount available to borrow under the credit facility as of September 30, 2020 was $ 408.6 million.

Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term.

Although 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.

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 March 31, 2020, we were in compliance with all covenants under this credit facility.

As of September 30, 2020, we were in compliance with all covenants under this credit facility.

1.25% Convertible Senior Notes Due 2022

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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 the three months ended March 31, 2020, the Notes are not yet 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.

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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 three and nine months ended March 31, 2020 related to the Notes was $ 3.3 million and $ 9.7 million, respectively, which consisted of $ 0.9 million and $ 2.7 million of contractual interest expense, $ 2.1 million and $ 6.1 million of debt discount amortization and $ 0.3 million and $ 0.9 million of amortization of debt issuance costs.

The total interest expense recognized for the three months and nine months ended March 31, 2019 was $ 3.2 million and $ 9.4 million, respectively, which consisted of $ 0.9 million and $ 2.7 million of contractual interest expense, $ 2.0 million and $ 5.8 million of debt discount amortization and $ 0.3 million and $ 0.9 million of amortization of debt issuance costs.

As of June 30, 2019 and March 31, 2020, the unamortized debt discount was $ 27.3 million and $ 21.2 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 $ 2.8 million as of June 30, 2019 and March 31, 2020, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

The total interest expense recognized for the three months ended September 30, 2020 related to the Notes was $ 3.3 million, which consisted of $ 0.9 million of contractual interest expense, $ 2.1 million of debt discount amortization and $ 0.3 million of amortization of debt issuance costs.

For the three months ended September 30, 2019, the total interest expense was $ 3.2 million, which consisted of $ 0.9 million of contractual interest expense, $ 2.0 million of debt discount amortization and $ 0.3 million of amortization of debt issuance costs.

As of June 30, 2020 and September 30, 2020, the respective unamortized debt discounts were $ 19.1 million and $ 17.0 million, which are being amortized over the remaining contractual term to maturity of the Notes using an effective interest rate of 4.5 %.

The unamortized debt issuance cost of $ 2.5 million and $ 2.3 million as of June 30, 2020 and September 30, 2020, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

Other Borrowings

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dollars, primarily for the issuance of letters-of-credit.

As of March 31, 2020, $ 41.6 million was outstanding under these letter-of-credit facilities.

As of March 31, 2020, the total amount available under these credit facilities was $ 24.2 million.

As of September 30, 2020, $ 57.4 million was outstanding under these letter-of-credit facilities.

As of September 30, 2020, the total amount available under these credit facilities was $ 14.7 million.

Long-term debt consisted of the following (in thousands):

September 30,

1.25% convertible notes due 2022:

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Stock-based Compensation

As of March 31, 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.

As of September 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.

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We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Cost of goods sold

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Stock-based compensation expense

As of March 31, 2020, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.5 million for stock options and $ 18.9 million for RSUs.

As of September 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 $ 27.7 million for RSUs.

We expect to recognize these costs over a weighted average period of 1.8 years with respect to the stock options and 1.8 years for grants of RSUs.

The following summarizes stock option activity during the nine months ended March 31, 2020:

Weighted Average

The following summarizes stock option activity during the three months ended September 30, 2020:

Weighted-Average

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Expired or forfeited

Outstanding at March 31, 2020

Exercisable at March 31, 2020

The following summarizes RSU award activity during the nine months ended March 31, 2020:

Outstanding at September 30, 2020

Exercisable at September 30, 2020

The following summarizes RSU award activity during the three months ended September 30, 2020:

Nonvested at June 30, 2020

Nonvested at March 31, 2020

As of March 31, 2020, there were approximately 1.0 million shares available for grant under the 2012 Plan.

Nonvested at September 30, 2020

As of September 30, 2020, there were approximately 0.5 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 97,514 and 81,621 performance-based RSUs during the nine months ended March 31, 2019 and 2020, respectively.

We granted 80,326 and 136,242 performance-based RSUs during the three months ended September 30, 2019 and 2020, respectively.

These performance based RSU awards are contingent on the achievement of certain performance metrics.

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Stock Repurchase Program

In March 2018, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares, which was completed during the three months ended March 31, 2020.

In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares.

In April 2020, the Board of Directors authorized a share repurchase program of up to 1,000,000 shares of common stock.

In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program.

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

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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.

During the nine months ended March 31, 2020, we repurchased 562,707 shares of our common stock.

Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them in our consolidated financial statements as a reduction in the number of shares of common stock issued and outstanding.

During the three months ended September 30, 2020, we repurchased 320,136 shares of our common stock.

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.

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Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions.

Retirement Benefit Plans

We sponsor various retirement benefit plans including qualified and nonqualified defined benefit pension plans for our employees.

The components of net periodic pension expense are as follows (in thousands):

Three Months Ended March 31,

Nine Months Ended March 31,

Interest cost

Amortization of prior service cost

Net periodic pension expense

For the three months ended March 31, 2019, we made no contributions to these defined benefit plans.

For the nine months ended March 31, 2019, we made contributions of $ 1.0 million to these defined benefit plans.

For the three and nine months ended March 31, 2020, we made no contributions to these defined benefit plans.

We also maintain various defined contribution plans.

For the three months ended March 31, 2019 and 2020, we made contributions of $ 1.6 million and $ 1.8 million, respectively, to these defined contribution plans.

For the nine months ended March 31, 2019 and 2020, we made contributions of $ 4.7 million and $ 5.0 million, respectively, to these defined contribution plans.

Commitments and Contingencies

Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the recent outbreak of coronavirus disease 2019 (COVID-19).

The rapid spread of COVID-19 and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy.

Because of the rapidly changing business environment, unprecedented market volatility and high degree of uncertainty resulting from COVID-19, the extent to which COVID-19 will adversely impact our business is highly uncertain and unpredictable.

While COVID-19 has negatively impacted, and is expected to continue to negatively impact, our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact from a prolonged pandemic cannot be reasonably estimated at this time.

We are regularly monitoring the potential effects of COVID-19 on our results of operations, cash flows and financial position.

Acquisition-Related Contingent 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 $ 23.7 million as of March 31, 2020.

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 35.1 million as of September 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.

We made $ 0.1 million and $ 1.3 million of such payments during the three and nine months ended March 31, 2019, respectively, and $ 0.2 million and $ 1.5 million of such payments during the three and nine months ended March 31, 2020, respectively.

We made contingent payments of $ 0.1 million relating to such acquisitions during each of the three months ended September 30, 2019 and 2020, respectively.

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.

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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 March 31, 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):

The following table provides a roll-forward from June 30, 2020 to September 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, 2020

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Payments on contingent earnout obligations

Ending fair value, March 31, 2020

Ending fair value, September 30, 2020

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 associated contractual obligations are complete.

Environmental Contingencies

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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.

We have agreed to hold certain parties harmless against losses arising from breaches 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 March 31, 2020.

It is not possible to determine the maximum potential liability 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 September 30, 2020.

On December 31, 2017, we and Deepak Chopra, our Chief Executive Officer, entered into an amendment to Mr.

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The following table presents changes in warranty provisions (in thousands):

Nine Months Ended March 31,

Three Months Ended September 30,

Balance at beginning of period

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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 United States District Court for the Central District of California (the "District Court") that were filed in December 2017 and February 2018.

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.

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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 U.S.

Department of Justice (“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.

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.

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As such, there can be significant volatility in interim tax provisions.

During the three and nine months ended March 31, 2020, we recognized discrete tax benefits of $ 5.1 million and $ 12.0 million, respectively, resulting in an effective tax rate of - 3.4 % and 8.7 % , respectively.

This included discrete tax benefits primarily related to equity-based compensation under ASU 2016-09 and return to provision true-up adjustments.

During the three and nine months ended March 31, 2019, we recognized a tax benefit for equity-based compensation of $ 0.7 million and $ 2.6 million, respectively, under ASU 2016-09 resulting in an effective tax rate of 26.0 % and 24.2 %, respectively.

Excluding the impact of the discrete tax items noted above, our effective tax rate for the three and nine months ended March 31, 2020 was 23.7 % and 26.7 %, respectively, as compared to 28.6 % and 28.4 % in the prior-year three month and nine month periods, respectively.

During the three months ended September 30, 2019 and 2020, we recognized discrete tax benefits related to equity-based compensation under ASU 2016-09 of $ 6.2 million and $ 0.3 million, respectively, resulting in an effective tax rate of - 2.9 % and 25.3 %, respectively.

Excluding the impact of the discrete tax items noted above, our effective tax rate for the three months ended September 30, 2020 was 27.5 % as compared to 27.9 % in the same prior-year period.

Segment Information

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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 of the Form 10-K for the fiscal year ended June 30, 2019.

The following tables set forth the results of operations and identifiable assets by industry segment (in thousands):

Three Months Ended March 31,

Nine Months Ended March 31,

All other accounting policies of the segments are the same as described in Note 1, Basis of Presentation.

The following tables present our results of operations and identifiable assets by industry segment (in thousands):

Three Months Ended September 30,

Revenues (1) —by Segment:

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Optoelectronics and Manufacturing division

September 30,

Assets (2) —by Segment:

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Eliminations (3)

(1) For each of the three and nine month periods ended March 31, 2019 and March 31, 2020, no customer accounted for greater than 10 % of total net revenues.

(2) One customer accounted for 16 % of accounts receivable, net as of March 31, 2020.

No customer accounted for 10 % or more of accounts receivable, net as of June 30, 2019.

(3) Eliminations in assets reflect the amount of intercompany profits in inventory and intercompany ROU assets under ASC 842 as of the balance sheet date.

Such intercompany profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions.

(1) For each of the three month periods ended September 30, 2019 and September 30, 2020, no customer accounted for greater than 10 % of total net revenues.

(2) One customer accounted for 13 % and 11 % of accounts receivable, net as of June 30, 2020 and September 30, 2020, respectively.

(3) Eliminations in assets reflect the amount of inter-segment profits in inventory and inter-segment ROU assets under ASC 842 as of the balance sheet date.

Such inter-segment profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements