What changed in this filing

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Item 1. Financial Statements

2021-01-29 compared with 2020-10-30 · 146 added, 113 removed, 484 unchanged (35% 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 , 18,011,982 shares at June 30, 2020 and 17,912,541 shares at September 30, 2020

issued and outstanding , 18,011,982 shares at June 30, 2020 and 17,933,256 shares at December 31, 2020

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Net revenues:

10 unchanged sentences

Income before income taxes

(Provision) benefit for income taxes

Provision for income taxes

Earnings per share:

5 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Other comprehensive income (loss):

7 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended September 30, 2019

Three Months Ended December 31, 2019

Comprehensive

Balance—September 30, 2019

Exercise of stock options

Vesting of RSUs

Repurchase of common stock

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—December 31, 2019

Three Months Ended December 31, 2020

Comprehensive

Balance—September 30, 2020

Exercise of stock options

Vesting of RSUs

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—December 31, 2020

Six Months Ended December 31, 2019

Comprehensive

Balance—June 30, 2019

6 unchanged sentences

Other comprehensive loss

Balance—September 30, 2019

Three Months Ended September 30, 2020

Balance—December 31, 2019

Six Months Ended December 31, 2020

Comprehensive

7 unchanged sentences

Other comprehensive income

Balance—September 30, 2020

See accompanying notes to condensed consolidated financial statements.

Balance—December 31, 2020

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Six Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Stock-based compensation expense

Provision for losses on accounts receivable

Deferred income taxes

1 unchanged sentence

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

34 unchanged sentences

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 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.

The results of operations for the three and six months ended December 31, 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

8 unchanged sentences

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.

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

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

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 $ 76.9 million at September 30, 2020.

Our cash and cash equivalents totaled $ 72.6 million at December 31, 2020.

Of this amount, approximately 72 % was held by our foreign subsidiaries and subject to repatriation tax considerations.

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

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

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

4 unchanged sentences

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.

The fair values of our foreign currency forward contracts were not significant as of December 31, 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.

5 unchanged sentences

June 30, 2020

September 30, 2020

December 31, 2020

Insurance company contracts

7 unchanged sentences

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.

We settled the net investment hedge during the three months ended December 31, 2020, and the amount recorded in other comprehensive income was not significant.

There were no net investment hedges outstanding as of December 31, 2020.

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.

We initiated these forward contracts during the three months ended September 30, 2020 and the amounts reported in the consolidated income statement for the three and six months ended December 31, 2020 were not significant.

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.

As of December 31, 2020, we held foreign currency forward contracts with notional amounts totalling $ 24.5 million.

Unrealized gains and losses from the forward currency forward contracts as of December 31, 2020 were not significant.

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

16 unchanged sentences

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.

Early adoption is permitted for 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.

5 unchanged sentences

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.

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):

20 unchanged sentences

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

7 unchanged sentences

Property and equipment, net

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.

Depreciation and amortization expense for property and equipment was $ 5.4 million and $ 5.6 million for the three months ended December 31, 2019 and 2020, respectively, and $ 10.5 million and $ 10.8 million for the six months ended December 31, 2019 and 2020, respectively.

Goodwill and Intangible Assets

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

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

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of September 30, 2020

Balance as of December 31, 2020

Intangible assets consisted of the following (in thousands):

June 30, 2020

September 30, 2020

December 31, 2020

Amortizable assets:

5 unchanged sentences

Total intangible assets

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):

Amortization expense related to intangible assets was $ 4.5 million and $ 5.6 million for the three months ended December 31, 2019 and 2020, respectively.

For the six months ended December 31, 2019 and 2020, amortization expense related to intangible assets was $ 9.4 million and $ 10.3 million, respectively.

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

2021 (remaining 6 months)

4 unchanged sentences

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

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.

For the three months ended December 31, 2019 and 2020, we capitalized software development costs in the amounts of $ 1.9 million and $ 2.4 million, respectively.

For the six months ended December 31, 2019 and 2020, we capitalized software development costs in the amounts of $ 3.2 million and $ 6.5 million, respectively.

Contract Assets and Liabilities

8 unchanged sentences

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

September 30,

Contract Assets:

4 unchanged sentences

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.

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

The increase in contract liabilities was primarily due to receipt of upfront deposits from customers 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 September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 297.6 million.

As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 361.1 million.

We expect to recognize revenue on approximately 60 % 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.

During the six months ended December 31, 2020, we recognized revenue of $ 39.3 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

3 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Operating lease cost

4 unchanged sentences

June 30, 2020

September 30, 2020

December 31, 2020

Operating lease ROU assets, net

7 unchanged sentences

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

Three Months Ended September 30,

Six Months Ended December 31,

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

Maturities of operating lease liabilities at December 31, 2020 were as follows (in thousands):

December 31, 2020

Less than one year

3 unchanged sentences

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 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.

During the three months ended December 31, 2020, we recognized a net benefit of $ 0.5 million for reimbursements from our insurance carriers for covered legal charges, partially offset by additional legal fees related to class action litigation and government investigations.

This net benefit was partially offset by charges of $ 0.1 million for employee terminations from operational efficiency activities and $ 0.2 million for acquisition-related activities.

During the six months ended December 31, 2020, we incurred $ 7.2 million for exit activities associated with an expired turnkey contract in Mexico.

Such exit costs commenced in the first quarter of the fiscal year and include $ 2.8 million for employee terminations, $ 1.1 million for facility closure and other exit costs, direct transaction costs of $ 2.7 million, and $ 0.6 million for right-of-use asset impairment.

We also incurred costs of $ 1.2 million for employee terminations and facility closure costs for operational efficiency activities and $ 0.3 million for acquisition-related activities, partially offset by a net benefit of $ 0.5 million for reimbursements from our insurance carriers for covered legal charges.

During the three and six months ended December 31, 2019, we recognized a net benefit of $ 1.4 and $ 3.5 million, respectively, 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.

These were partially offset by operational efficiency activites during the three and six months ended December 31, 2019, which included employee termination costs of $ 0.4 million and $ 0.5 million, respectively.

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

Three Months Ended September 30, 2019

Three Months Ended December 31, 2019

Optoelectronics and

1 unchanged sentence

Security Division

Employee termination costs (benefit)

Employee termination costs

Legal recoveries, net

Three Months Ended September 30, 2020

Total expensed (benefit), net

Three Months Ended December 31, 2020

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation costs (benefit)

Legal recoveries, net

Total expensed (benefit), net

Six Months Ended December 31, 2019

Optoelectronics and

Manufacturing

Security Division

Employee termination costs

Legal recoveries, net

Total expensed (benefit), net

Six Months Ended December 31, 2020

Optoelectronics and

Manufacturing

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation

Facility closures/consolidation costs

Legal recoveries, net

Total expensed

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):

Total expensed (benefit), net

The accrued liability for restructuring and other charges is included in other accrued expenses and current liabilities in the condensed consolidated balance sheet.

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

Consolidation

Legal Costs and

Related Costs

Balance as of June 30, 2020

1 unchanged sentence

Payments, adjustments and reimbursements, net

Balance as of September 30, 2020

Balance as of December 31, 2020

Revolving Credit Facility

2 unchanged sentences

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 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).

Borrowings under this facility bear interest at LIBOR plus a margin of 1.0 % as of December 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).

The LIBOR index is expected to be discontinued by the end of calendar year 2021.

1 unchanged sentence

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).

The unused portion of the facility bears a commitment fee of 0.10 % as of December 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).

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 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.

As of December 31, 2020, there was $ 18.0 million of borrowings outstanding under the revolving credit facility and $ 71.2 million outstanding under the letters of credit sub facility.

The amount available to borrow under the credit facility as of December 31, 2020 was $ 445.8 million.

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

1 unchanged sentence

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

It is our practice to routinely borrow and repay several times per year under this revolving facility and therefore, borrowings under the credit facility are included in current liabilities.

As of December 31, 2020, we were in compliance with all covenants under this credit facility.

1.25% Convertible Senior Notes Due 2022

3 unchanged sentences

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.

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.

2 unchanged sentences

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 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.

The total interest expense recognized for the three and six months ended December 31, 2020 related to the Notes was $ 3.3 million and $ 6.6 million, respectively, which consisted of $ 0.9 million and $ 1.8 million of contractual interest expense, $ 2.1 million and $ 4.2 million of debt discount amortization and $ 0.3 million and $ 0.6 million of amortization of debt issuance costs.

For the three and six months ended December 31, 2019, the total interest expense was $ 3.2 million and $ 6.4 million, respectively, which consisted of $ 0.9 million and $ 1.8 million of contractual interest expense, $ 2.0 million and $ 4.0 million of debt discount amortization and $ 0.3 million and $ 0.6 million of amortization of debt issuance costs.

As of June 30, 2020 and December 31, 2020, the respective unamortized debt discounts were $ 19.1 million and $ 14.8 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 $ 2.0 million as of June 30, 2020 and December 31, 2020, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

Other Borrowings

1 unchanged sentence

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

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.

As of December 31, 2020, $ 62.0 million was outstanding under these letter-of-credit facilities.

As of December 31, 2020, the total amount available under these credit facilities was $ 12.7 million.

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

September 30,

1.25% convertible notes due 2022:

1.25% convertible notes due September 1, 2022:

Principal amount

6 unchanged sentences

Stock-based Compensation

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.

As of December 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.

No further grants may be made under the 2006 Plan.

1 unchanged sentence

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Cost of goods sold

2 unchanged sentences

Stock-based compensation expense

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.

As of December 31, 2020, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.6 million for stock options and $ 24.6 million for RSUs.

We expect to recognize these costs over a weighted average period of 2.3 years with respect to the stock options and 1.9 years for grants of RSUs.

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

The following summarizes stock option activity during the six months ended December 31, 2020:

Weighted-Average

4 unchanged sentences

Expired or forfeited

Outstanding at September 30, 2020

Exercisable at September 30, 2020

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

Outstanding at December 31, 2020

Exercisable at December 31, 2020

The following summarizes RSU award activity during the six months ended December 31, 2020:

Nonvested at June 30, 2020

Nonvested at September 30, 2020

As of September 30, 2020, there were approximately 0.5 million shares available for grant under the 2012 Plan.

Nonvested at December 31, 2020

In December 2020, our shareholders authorized an increase of 1.65 million shares for the 2012 Plan resulting in a maximum pool of 7.1 million shares.

As of December 31, 2020, there were approximately 2.1 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 80,326 and 136,242 performance-based RSUs during the three months ended September 30, 2019 and 2020, respectively.

We granted 81,621 and 136,242 performance-based RSUs during the six months ended December 31, 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.

Compensation cost associated with these performance based RSUs are recognized based on the estimated number of shares that we ultimately expect will vest.

If the estimated number of shares to vest is revised in the future, then stock based compensation expense will be adjusted accordingly.

Stock Repurchase Program

5 unchanged sentences

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.

During the six months ended December 31, 2020, we repurchased 320,136 shares of our common stock, all of which occurred in the first quarter of the fiscal year.

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.

4 unchanged sentences

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 $ 35.1 million as of September 30, 2020.

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 32.8 million as of December 31, 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 contingent payments of $ 0.1 million relating to such acquisitions during each of the three months ended September 30, 2019 and 2020, respectively.

We made contingent payments relating to such acquisitions of $ 1.1 million and $ 1.2 million, respectively, during the three and six months ended December 31, 2019 and $ 0.5 million and $ 0.6 million, respectively, during the three and six months ended December 31, 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.

1 unchanged sentence

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, 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):

The following table provides a roll-forward from June 30, 2020 to December 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):

Beginning fair value, June 30, 2020

3 unchanged sentences

Payments on contingent earnout obligations

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.

Ending fair value, December 31, 2020

Environmental Contingencies

4 unchanged sentences

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 continue to take voluntary actions, in cooperation with the local governing agency, to fully investigate the site and 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.

6 unchanged sentences

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.

We have not recorded any liability for costs related to contingent indemnification obligations as of December 31, 2020.

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

12 unchanged sentences

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

Three Months Ended September 30,

Six Months Ended December 31,

Balance at beginning of period

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

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.

During the three months ended December 31, 2019 and 2020, we recognized discrete tax benefits of $ 0.7 million and discrete tax expenses of $ 0.3 million, respectively, related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates resulting in an effective tax rate of 25.3 % and 28.6 %, respectively.

Excluding the impact of the discrete tax items noted above, our effective tax rate for the three months ended December 31, 2020 was 27.5 % as compared to 27.7 % in the same prior-year period.

During the six months ended December 31, 2019 and 2020, we recognized discrete tax benefits of $ 6.9 million and discrete tax expenses of $ 0.1 million, respectively, related to equity-based compensation under ASU 2016-09 and changes in prior year estimates resulting in an effective tax rate of 13.5 % and 27.7 %, respectively.

Excluding the impact of the discrete tax items noted above, our effective tax rate for the six months ended December 31, 2020 was 27.5 % as compared to 27.8 % in the same prior-year period.

Segment Information

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Revenues (1) —by Segment:

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Optoelectronics and Manufacturing division

September 30,

Intersegment eliminations

Assets (2) —by Segment:

3 unchanged sentences

Eliminations (3)

(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.

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

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

No customer accounted for more than 10% of accounts receivable, net as of December 31, 2020.

(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.

1 unchanged sentence

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