What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-04-30 · 162 added, 222 removed, 423 unchanged (48% of the section changed)

4 unchanged sentences

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

June 30, 2021

September 30, 2021

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 17,980,207 shares at March 31, 2021

issued and outstanding , 17,854,110 shares at June 30, 2021 and 17,941,393 shares at September 30, 2021

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:

5 unchanged sentences

Research and development

Impairment, restructuring and other charges (benefit), net

Impairment, restructuring and other charges, net

Total operating expenses

2 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 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, 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

Three Months Ended March 31, 2021

Comprehensive

Balance—December 31, 2020

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, 2021

Nine Months Ended March 31, 2020

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

Nine Months Ended March 31, 2021

Other comprehensive income

Balance—September 30, 2020

Three Months Ended September 30, 2021

Comprehensive

6 unchanged sentences

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—March 31, 2021

Adoption of ASU 2020-06 for convertible notes

Other comprehensive loss

Balance—September 30, 2021

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Nine Months Ended March 31,

Three Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions:

Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from acquisitions:

Depreciation and amortization

Stock-based compensation expense

Provision for losses on accounts receivable

Provision (recoveries) for losses on accounts receivable

Deferred income taxes

7 unchanged sentences

Advances from customers

Net cash provided by operating activities

Deferred revenue

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

33 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, 2021 filed with the SEC.

The results of operations for the three and nine months ended March 31, 2021 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 months ended September 30, 2021 are not necessarily indicative of the operating results to be expected for the full 2022 fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and costs of sales during the reporting period.

The most significant of these estimates and assumptions for our company relate to contract revenue, profit and loss recognition, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill.

The most significant of these estimates and assumptions for our company relate to contract revenue, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs, legal contingencies and recoveries, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill.

Changes in estimates are reflected in the periods during which they become known.

5 unchanged sentences

The underlying equity component of the 1.25 % convertible senior notes due 2022 (the “Notes”) discussed in Note 7 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 of $ 107.46 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, 2020 and 2021.

There was no dilutive effect of the Notes for the three months ended September 30, 2020 and 2021.

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

7 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 $ 92.5 million at March 31, 2021.

Our cash and cash equivalents totaled $ 54.7 million at September 30, 2021.

Of this amount, approximately 83 % 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 and India and to a lesser extent in Puerto Rico and Albania among other countries.

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

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

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

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

2 unchanged sentences

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 March 31, 2021.

The carrying values of our long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us.

The fair values of our foreign currency forward contracts were not significant as of September 30, 2021.

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, 2021

March 31, 2021

Insurance company contracts

Contingent consideration

September 30, 2021

Assets—Insurance company contracts

Liabilities—Contingent consideration

Derivative Instruments and Hedging Activity

5 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 settled the net investment hedge in the second quarter of fiscal 2021, and the amount recorded in other comprehensive loss was not significant.

There were no net investment hedges outstanding as of March 31, 2021.

There were no net investment hedges outstanding as of September 30, 2021.

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

We initiated these forward contracts in the first quarter of fiscal 2021 and the amounts reported in the consolidated income statement for the three and nine months ended March 31, 2021 were not significant.

We initiated these forward contracts in the first quarter of fiscal 2021.

The amounts reported in the consolidated income statement for the three months ended September 30, 2021 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 March 31, 2021, we held foreign currency forward contracts with notional amounts totaling $ 23.5 million.

Unrealized gains and losses from the forward currency forward contracts as of March 31, 2021 were not significant.

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

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“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 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 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.

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 did not have a significant impact on our consolidated financial statements.

ASU 2020-04 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 future modifications to contracts, if any, is not expected to 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 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.

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.

As of June 30, 2021 and September 30, 2021, we held foreign currency forward contracts with notional amounts totaling $ 26.1 million and $ 22.4 million, respectively.

Unrealized gains and losses from the forward currency forward contracts as of September 30, 2021 were not significant.

Business Combinations

6 unchanged sentences

Upon the conclusion of the measurement period, any subsequent adjustments are reflected in reported earnings.

Fiscal Year 2021 Business Acquisition

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.

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.

Recently Adopted Accounting Pronouncements

Convertible Debt

In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”).

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

By removing those separation models, the effective interest rate of convertible debt instruments typically will be closer to the coupon interest rate.

The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.

We early adopted the new guidance on July 1, 2021 using the modified retrospective approach and recorded a $ 19 million increase to retained earnings and a reduction of $ 27 million in common stock as if there had been no equity component.

Additionally, we recorded an increase to the convertible notes balance by approximately $ 10 million.

Interest expense recognized subsequent to adoption on July 1, 2021 will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.

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.

The ASU applies to all entities that pay income taxes under GAAP.

We adopted this accounting pronouncement on July 1, 2021 using the modified prospective approach.

The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

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, furniture and fixtures

Equipment and tooling

Furniture and fixtures

Computer equipment

Computer software

3 unchanged sentences

Property and equipment, net

Depreciation and amortization expense for property and equipment was $ 5.4 million and $ 5.5 million for the three months ended March 31, 2020 and 2021, respectively, and $ 15.9 million and $ 16.3 million for the nine months ended March 31, 2020 and 2021, respectively.

Depreciation and amortization expense for property and equipment was $ 5.2 million and $ 5.3 million for the three months ended September 30, 2020 and 2021, respectively.

Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2021 were as follows (in thousands):

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2021 were as follows (in thousands)

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of March 31, 2021

Balance as of September 30, 2021

Intangible assets consisted of the following (in thousands):

June 30, 2021

March 31, 2021

September 30, 2021

Amortizable assets:

1 unchanged sentence

Developed technology

Customer relationships/backlog

Customer relationships

Total amortizable assets

Non-amortizable assets:

In-process research and development

In-process R&D

Total intangible assets

Amortization expense related to intangible assets was $ 4.9 million and $ 4.8 million for the three months ended March 31, 2020 and 2021, respectively.

For the nine months ended March 31, 2020 and 2021, amortization expense related to intangible assets was $ 14.3 million and $ 15.1 million, respectively.

At March 31, 2021, the estimated future amortization expense for intangible assets was as follows (in thousands):

Amortization expense related to intangible assets was $ 4.8 million and $ 4.4 million for the three months ended September 30, 2020 and 2021, respectively.

At September 30, 2021, the estimated future amortization expense for intangible assets was as follows (in thousands):

2022 (remaining 9 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 March 31, 2020 and 2021, we capitalized software development costs in the amounts of $ 4.5 million and $ 2.6 million, respectively.

For the nine months ended March 31, 2020 and 2021, we capitalized software development costs in the amounts of $ 7.7 million and $ 9.1 million, respectively.

For each of the three months ended September 30, 2020 and 2021, we capitalized software development costs in the amount of $ 4.1 million.

Contract Assets and Liabilities

1 unchanged sentence

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 may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer.

We record customer deposits as contract liabilities.

2 unchanged sentences

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:

The table below shows the balance of contract assets and liabilities as of June 30, 2021 and September 30, 2021, including the change between the periods.

There were no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands)

September 30,

Unbilled revenue (included in accounts receivable, net)

Contract Liabilities (in thousands)

September 30,

Advances from customers

1 unchanged sentence

Deferred revenue—long-term

Contract assets increased during the nine months ended March 31, 2021 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.

Contract assets were comparable with the beginning of the fiscal year.

The increase in contract liabilities was primarily due to deferred revenue from receipt of payments under service and warranty contracts primarily 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, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 322.8 million.

As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 414.1 million.

We expect to recognize revenue on approximately 34 % 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, 2021, we recognized revenue of $ 45.0 million from contract liabilities existing at the beginning of the period.

During the three months ended September 30, 2021, we recognized revenue of $ 22.8 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 March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Operating lease cost

4 unchanged sentences

June 30, 2021

March 31, 2021

September 30, 2021

Operating lease ROU assets, net

7 unchanged sentences

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

Nine Months Ended March 31,

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 March 31, 2021 were as follows (in thousands):

March 31, 2021

Maturities of operating lease liabilities at September 30, 2021 were as follows (in thousands):

September 30, 2021

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 three months ended March 31, 2021, we recognized a total net benefit of ($ 0.3 ) million which included a net benefit of ($ 0.7 ) million for reimbursements from our insurance carriers for covered legal charges.

We also incurred charges of $ 0.2 million for employee terminations and $ 0.2 million for facility closure and operational efficiency activities.

During the nine months ended March 31, 2021, we incurred a total net expense of $ 7.9 million which included $ 7.2 million for exit activities associated with an expired turnkey contract in Mexico.

Such exit costs 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 for a leased facility.

We also incurred costs of $ 1.6 million for other employee terminations and facility closure costs for operational efficiency activities and $ 0.3 million for acquisition-related activities.

We also recognized a net benefit of ($ 1.2 ) million for reimbursements from our insurance carriers for covered legal charges.

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.

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

Three Months Ended March 31, 2020

During the three months ended September 30, 2021, we recognized $ 2.5 million in restructuring and other charges which included $ 2.2 million in legal charges net of insurance recoveries, $ 0.3 million for employee terminations, and an insignificant net benefit for facility closure and operational efficiency activities.

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 activities 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 (benefits), net for the periods set forth below (in thousands):

Three Months Ended September 30, 2020

Optoelectronics and

2 unchanged sentences

Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation

1 unchanged sentence

Total expensed

Three Months Ended March 31, 2021

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation costs (benefit)

Legal costs (recoveries), net

Total expensed (benefit), net

Nine Months Ended March 31, 2020

Three Months Ended September 30, 2021

Optoelectronics and

1 unchanged sentence

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

2 unchanged sentences

Total expensed

Nine Months Ended March 31, 2021

Optoelectronics and

Manufacturing

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation costs

Legal costs (recoveries), net

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 nine-month period ended March 31, 2021 were as follows (in thousands):

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

The changes in the accrued liability for restructuring and other charges for the three-month period ended September 30, 2021 were as follows (in thousands):

Consolidation

Legal Costs and

Related Costs

Balance as of June 30, 2021

Restructuring and other charges (benefit), net

Restructuring and other charges (benefits), net

Payments, adjustments and reimbursements, net

Balance as of March 31, 2021

Balance as of September 30, 2021

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 March 31, 2021 (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, 2021 (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 March 31, 2021 (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 September 30, 2021 (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 March 31, 2021, there were no borrowings outstanding under the revolving credit facility and $ 66.7 million outstanding under the letters of credit sub facility.

The amount available to borrow under the credit facility as of March 31, 2021 was $ 468.3 million.

As of September 30, 2021, there was $ 26 million of borrowings outstanding under the revolving credit facility and $ 79.4 million outstanding under the letters of credit sub facility.

The amount available to borrow under the credit facility as of September 30, 2021 was $ 429.6 million.

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

2 unchanged sentences

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 March 31, 2021, we were in compliance with all covenants under this credit facility.

As of September 30, 2021, we were in compliance with all financial covenants under this credit facility.

1.25% Convertible Senior Notes (“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.

Pursuant to ASC 470-20, we allocated the $ 287.5 million gross proceeds of the Notes between liability and equity components.

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 original indenture provided that 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 irrevocably elected a combination settlement method to satisfy the conversion obligation, which provides for 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 2021, the Notes are not yet convertible.

Pursuant to ASC 470-20, we originally allocated the $ 287.5 million gross proceeds of the Notes between liability and equity components.

The initial $ 242.4 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature for similar terms and priced on the same day the Notes were issued.

The initial $ 45.1 million equity component represents the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes.

The debt discount is amortized over the remaining contractual term to maturity of the Notes using an effective interest rate of 4.5 %.

The debt issuance cost is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

Total interest expense recognized for the three and nine months ended March 31, 2021 related to the Notes was $ 3.3 million and $ 10.0 million, respectively, which consisted of $ 0.9 million and $ 2.7 million of contractual interest expense, $ 2.2 million and $ 6.4 million of debt discount amortization and $ 0.3 million and $ 0.9 million of amortization of debt issuance costs.

For the three and nine months ended March 31, 2020, total interest expense 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.

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, 2021, the total interest expense was $ 1.2 million, which consisted of $ 0.9 million of contractual interest expense and $ 0.3 million of amortization of debt issuance costs.

As of June 30, 2021, the unamortized debt discount of $10.5 million was eliminated upon the adoption of ASU 2020-06.

The unamortized debt issuance cost of $ 1.4 million and $ 1.3 million as of June 30, 2021 and September 30, 2021, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.

By removing those separation models, the effective interest rate of convertible debt instruments typically will be closer to the coupon interest rate.

Additionally, we recorded an increase to the convertible notes balance by approximately $ 10 million.

Other Borrowings

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

As of March 31, 2021, $ 63.0 million was outstanding under these letter-of-credit facilities.

As of March 31, 2021, the total amount available under these credit facilities was $ 12.9 million.

As of September 30, 2021, $ 65.7 million was outstanding under these letter-of-credit facilities.

As of September 30, 2021, the total amount available under these credit facilities was $ 9.4 million.

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

June 30, 2021

September 30, 2021

1.25% convertible notes due September 1, 2022:

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Stock-based Compensation

As of March 31, 2021, 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, 2021, 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, 2021, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.5 million for stock options and $ 20.7 million for restricted stock units (“RSUs”).

As of September 30, 2021, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.4 million for stock options and $ 31.8 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 1.7 years with respect to the stock options and 1.6 years for grants of RSUs.

The following summarizes stock option activity during the nine months ended March 31, 2021:

The following summarizes stock option activity during the three months ended September 30, 2021:

Weighted-Average

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Expired or forfeited

Outstanding at March 31, 2021

Exercisable at March 31, 2021

The following summarizes RSU award activity during the nine months ended March 31, 2021:

Outstanding at September 30, 2021

Exercisable at September 30, 2021

The following summarizes RSU award activity during the three months ended September 30, 2021:

Nonvested at June 30, 2021

Nonvested at March 31, 2021

Nonvested at September 30, 2021

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 March 31, 2021, there were approximately 2.1 million shares available for grant under the 2012 Plan.

As of September 30, 2021, there were approximately 1.5 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 81,621 and 136,242 performance-based RSUs during the nine months ended March 31, 2020 and 2021, respectively.

We granted 136,242 and 96,620 performance-based RSUs during the three months ended September 30, 2020 and 2021, respectively.

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

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Stock Repurchase Program

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.

Our Board of Directors has authorized a share repurchase program of up to 3,000,000 shares of common stock.

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

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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 nine months ended March 31, 2021, we repurchased 322,588 shares of our common stock.

During the three months ended September 30, 2021, we repurchased 168,506 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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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 $ 30.2 million as of March 31, 2021.

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 32.4 million as of September 30, 2021.

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 relating to such acquisitions of $ 0.2 million and $ 1.5 million, respectively, during the three and nine months ended March 31, 2020 and $ 0.2 million and $ 0.9 million, respectively, during the three and nine months ended March 31, 2021.

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.

We made contingent payments relating to such acquisitions of $ 0.1 million and $ 0.3 million, respectively, during the three months ended September 30, 2020 and 2021, respectively.

For acquisitions completed after fiscal 2009, pursuant to ASC 805, the estimated fair value of these obligations is recorded as a liability at the time of the acquisition with subsequent revisions recorded in Selling, general and administrative expense in the consolidated financial statements.

The estimated fair value measurements of contingent earnout obligations are primarily based on unobservable inputs, which may include projected revenues, gross margins, operating income and the estimated probability of achieving the earnouts.

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 March 31, 2021 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, 2021 to September 30, 2021 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, 2021

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Payments on contingent earnout obligations

Ending fair value, March 31, 2021

Ending fair value, September 30, 2021

Environmental Contingencies

We are subject to various environmental laws.

Our practice is to conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations.

We often conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations.

In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants.

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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 March 31, 2021.

We have not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2021.

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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17 cv 08841, allege violations of Sections 10(b) and 20(a) of the Exchange Act, relating to certain of our public statements and filings with the SEC, and seek damages and other relief based upon the allegations in the complaints.

Although we believe that the actions are without merit, because of the costs and inherent uncertainty in litigation, we reached an agreement to settle the Arkansas Teacher Retirement Systems matter for $ 12.5 million, subject to court approval.

We have accrued the $ 12.5 million in Other accrued expenses and current liabilities as of September 30, 2021.

The settlement amount is probable and anticipated to be recovered by insurance and, therefore, we also recorded an asset for $ 12.5 million within Prepaid expenses and other current assets as of September 30, 2021.

If the insurance recovery is less than the agreed-upon settlement, we would recognize an expense for the difference between the settlement and the amount recovered.

In April 2018 and March 2019, two shareholder derivative complaints were filed purportedly on behalf of the Company against certain members of our Board of Directors (as individual defendants), a former member of our Board of Directors, and a member of management.

The derivative actions, which were consolidated by the District Court in November 2019 in an action captioned Kocen and Riley v.

The derivative actions, which were consolidated by the District Court in November 2019 in an action captioned Riley v.

Chopra, et al.

18 CV 03371, allege, among other things, breach of fiduciary duties relating to the allegations contained in the above-mentioned short seller report and seek damages, restitution, injunctive relief, attorneys' and experts' fees, costs, expenses, and other unspecified relief.

We believe that the actions are without merit and intend to defend them vigorously, and we expect to incur costs associated with defending against these actions.

At this early stage of the litigations, the ultimate outcomes are uncertain and we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, if any, or their effect, if any, on our financial statements.

The SEC and the DOJ are conducting an investigation of trading in our securities and have each subpoenaed information regarding trading by executives, directors, and employees, as well as our operations and disclosures in and around the time of certain trades.

With respect to these trading related matters, in fiscal year 2018, we took action with respect to a senior level employee.

At this time, we are unable to predict what, if any, action may be taken by the DOJ or SEC as a result of these trading related investigations, or any penalties or remedial measures these agencies may seek.

We place a high priority on compliance with our anticorruption and securities trading policies and are cooperating with each of the government investigations.

The derivative actions have been dismissed and an appeal is pending.

We are involved in various other claims and legal proceedings arising in the ordinary course of business.

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

The effective tax rates for the three months ended March 31, 2021 and 2020 were 33.7 % and ( 3.4 )%, respectively.

During the three months ended March 31, 2021, we recognized a net discrete tax expense of $ 2.2 million for return-to-provision true-up adjustments of $ 2.4 million, offset by a discrete tax benefit of ($ 0.2 ) million for equity-based compensation under ASU 2016-09.

During the three months ended March 31, 2020, we recognized a discrete tax benefit of $ 5.1 million for a return to provision true-up adjustment.

The effective tax rate for the nine months ended March 31, 2021 and 2020 was 30.1 % and 8.7 %, respectively.

During the nine months ended March 31, 2021, we recognized a net discrete tax expense of $ 2.3 million for return-to-provision true-up adjustments of $ 2.8 million, offset by a ($ 0.5 ) million tax benefit from equity-based compensation under ASU 2016-09.

During the nine months ended March 31, 2020, we recognized a discrete tax benefit of $ 12.0 million for equity-based compensation under ASU 2016-09 of $ 6.8 million and a return to provision true-up adjustment of $ 5.2 million.

The effective tax rates for the three months ended September 30, 2020 and 2021 were 25.3 % and 15.9 %, respectively.

During the three months ended September 30, 2020 and 2021, we recognized net discrete tax benefit of $ 0.3 million and $ 2.1 million, respectively, for stock-based compensation under ASU 2016-09.

Segment Information

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(a) security and inspection systems (Security division), (b) medical monitoring and diagnostic cardiology systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division).

We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses;

expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments.

We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses, expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments.

Both the Security and Healthcare divisions comprise primarily end-product businesses, whereas the Optoelectronics and Manufacturing division primarily supplies components and subsystems to external OEM customers, as well as to the Security and Healthcare divisions.

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

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Revenues (1) —by Segment:

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Intersegment Eliminations

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, 2020 and March 31, 2021, 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.

A different customer accounted for 10 % of accounts receivable, net as of March 31, 2021.

(1) For each of the three-month periods ended September 30, 2020 and September 30, 2021, no customer accounted for greater than 10 % of total net revenues.

(2) As of June 30, 2021 and September 30, 2021, no customer accounted for greater than 10 % of accounts receivable.

(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.

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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