What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-01-28 compared with 2021-10-29 · 169 added, 123 removed, 462 unchanged (39% of the section changed)

5 unchanged sentences

June 30, 2021

September 30, 2021

December 31, 2021

CURRENT ASSETS:

23 unchanged sentences

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

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

issued and outstanding , 17,854,110 shares at June 30, 2021 and 17,643,903 shares at December 31, 2021

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:

5 unchanged sentences

Research and development

Impairment, restructuring and other charges, net

Impairment, restructuring and other charges (benefit), net

Total operating expenses

10 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, 2020

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

Three Months Ended December 31, 2021

Comprehensive

Balance—September 30, 2021

Exercise of stock options

Vesting of RSUs

Stock-based compensation expense

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—December 31, 2021

Six Months Ended December 31, 2020

Comprehensive

Balance—June 30, 2020

6 unchanged sentences

Other comprehensive income

Balance—September 30, 2020

Three Months Ended September 30, 2021

Balance—December 31, 2020

Six Months Ended December 31, 2021

Comprehensive

8 unchanged sentences

Other comprehensive loss

Balance—September 30, 2021

Balance—December 31, 2021

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Six Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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

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

Depreciation and amortization

Stock-based compensation expense

Provision (recoveries) for losses on accounts receivable

Provision for (recovery of) losses on accounts receivable

Deferred income taxes

8 unchanged sentences

Deferred revenue

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

Proceeds from sale of property and equipment

Purchases of certificates of deposit

11 unchanged sentences

Taxes paid related to net share settlement of equity awards

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

17 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 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.

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

8 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 months ended September 30, 2020 and 2021.

There was no dilutive effect of the Notes for the three and six months ended December 31, 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 September 30,

Three Months Ended December 31,

Six Months Ended December 31,

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 $ 54.7 million at September 30, 2021.

Our cash and cash equivalents totaled $ 86.3 million at December 31, 2021.

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, India, Malaysia, Singapore and Canada, and to a lesser extent in Australia, Albania and Germany among other countries.

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

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

4 unchanged sentences

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.

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

September 30, 2021

December 31, 2021

Assets—Insurance company contracts

5 unchanged sentences

We do not use hedging instruments for speculative purposes.

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

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

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.

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.

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

The net gains or losses from our 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.

The amounts reported in the consolidated income statement for the three months ended September 30, 2021 were not significant.

The amounts reported in the consolidated income statement for the three and six months ended December 31, 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 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.

As of June 30, 2021 and December 31, 2021, we held foreign currency forward contracts with notional amounts totaling $ 26.1 million and $ 28.0 million, respectively.

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

Business Combinations

3 unchanged sentences

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Management’s estimates of fair value are based upon assumptions which are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

We may record adjustments to the assets acquired and liabilities assumed, with corresponding adjustments to goodwill, during the one-year post-acquisition measurement period as additional information becomes available.

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

Any adjustments subsequent to the conclusion of such one-year measurement period are reflected in reported earnings.

Recently Adopted Accounting Pronouncements

6 unchanged sentences

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.

Additionally, we recorded an increase to the convertible notes balance of $ 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.

7 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

9 unchanged sentences

Property and equipment, net

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.

Depreciation and amortization expense for property and equipment was $ 5.6 million and $ 5.3 million for the three months ended December 31, 2020 and 2021, respectively, and $ 10.8 million and $ 10.6 million for the six months ended December 31, 2020 and 2021, respectively.

Goodwill and Intangible Assets

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

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

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of September 30, 2021

Balance as of December 31, 2021

Intangible assets consisted of the following (in thousands):

June 30, 2021

September 30, 2021

December 31, 2021

Amortizable assets:

6 unchanged sentences

Total intangible assets

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):

Amortization expense related to intangible assets was $ 5.6 million and $ 4.2 million for the three months ended December 31, 2020 and 2021, respectively.

For the six months ended December 31, 2020 and 2021, amortization expense related to intangible assets was $ 10.3 million and $ 8.6 million, respectively.

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

2022 (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 each of the three months ended September 30, 2020 and 2021, we capitalized software development costs in the amount of $ 4.1 million.

For the three months ended December 31, 2020 and 2021, we capitalized software development costs in the amounts of $ 2.4 million and $ 3.6 million, respectively.

For the six months ended December 31, 2020 and 2021, we capitalized software development costs in the amounts of $ 6.5 million and $ 7.7 million, respectively.

Contract Assets and Liabilities

7 unchanged sentences

We recognize these contract liabilities as sales after all revenue recognition criteria are met.

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.

The table below shows the balance of contract assets and liabilities as of June 30, 2021 and December 31, 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 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.

Contract assets decreased due to invoicing for performance obligations fulfilled in our Security division.

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

As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 357.0 million.

We expect to recognize revenue on approximately 49 % 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, 2021, we recognized revenue of $ 22.8 million from contract liabilities existing at the beginning of the period.

During the six months ended December 31, 2021, we recognized revenue of $ 41.2 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, 2021

September 30, 2021

December 31, 2021

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, 2021 were as follows (in thousands):

September 30, 2021

Maturities of operating lease liabilities at December 31, 2021 were as follows (in thousands):

December 31, 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 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.

During the three months ended December 31, 2021, we recognized $ 0.8 million in restructuring and other charges, which primarily included $ 0.5 million in legal charges primarily related to class action litigation and government investigations and $ 0.3 million for employee terminations.

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, 2021, we recognized $ 3.3 million in restructuring and other charges, which primarily included $ 0.7 million in employee terminations and $ 2.7 million in legal charges.

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 2021 fiscal year and included $ 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.

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

Three Months Ended December 31, 2020

Optoelectronics and

1 unchanged sentence

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation costs (benefit)

Legal recoveries, net

Total expensed (benefit), net

Three Months Ended December 31, 2021

Optoelectronics and

Manufacturing

Security Division

Employee termination costs

Facility closures/consolidation

Legal costs (recoveries), net

Legal costs, net

Total expensed

Three Months Ended September 30, 2021

Six Months Ended December 31, 2020

Optoelectronics and

1 unchanged sentence

Security Division

Impairment charges

Acquisition-related costs

Employee termination costs

Mexico transaction costs

Facility closures/consolidation costs

Legal recoveries, net

Total expensed (benefit), net

Six Months Ended December 31, 2021

Optoelectronics and

Manufacturing

Security Division

Employee termination costs

Facility closures/consolidation

Legal costs (recoveries), net

Legal costs, net

Total expensed

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):

The changes in the accrued liability for restructuring and other charges for the six-month period ended December 31, 2021 were as follows (in thousands):

Consolidation

2 unchanged sentences

Payments, adjustments and reimbursements, net

Balance as of September 30, 2021

Balance as of December 31, 2021

Revolving Credit Facility

We have a revolving credit facility with an aggregate committed amount of up to $ 535 million which matures in April 2024.

The credit facility includes a $ 300 million sub-limit for letters of credit.

Under certain circumstances, we have the ability to increase the facility by the greater of $ 250 million or such amount as would not cause our secured leverage ratio to exceed a specified level.

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

The terms of our credit facility allow for replacement if that occurs.

In December 2021, we entered into an amendment to the senior secured credit facility that increased the aggregate amount available to borrow from $ 535 million to $ 750 million.

The amended facility matures in December 2026 and is comprised of a $ 600 million revolving credit facility and a $ 150 million delayed draw term loan.

The term loan is available to us to draw through September 1, 2022.

The revolving credit facility includes a $ 300 million sub-limit for letters of credit.

Under certain circumstances and subject to certain conditions, we have the ability to increase the revolving credit 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 the amended facility bore interest at LIBOR plus a margin of 1.0 % as of December 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).

The LIBOR index is expected to be phased out over time.

The terms of our credit facility allow for replacement when that occurs.

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

The unused portion of the facility bears a commitment fee of 0.10 % as of September 30, 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 bore a commitment fee of 0.10 % as of December 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).

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, 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.

As of December 31, 2021, there were $ 81.6 million of borrowings outstanding under the revolving credit facility, $ 84.2 million outstanding under the letters of credit sub-facility, and no borrowings outstanding under the term loan.

As of December 31, 2021, the amount available to borrow under the revolving credit facility was $ 434.2 million and the amount available to borrow under the term loan was $ 150 million.

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

The principal amount of each revolving loan is due and payable in full on the maturity date.

We have the right to repay each revolving loan in whole or in part from time to time without penalty.

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

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

The principal amount of each loan is due and payable in full on the maturity date.

We have the right to repay each 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 the revolving facility and therefore, borrowings under the revolving credit facility are included in current liabilities.

As of December 31, 2021, we were in compliance with all financial covenants under this credit facility.

1.25% Convertible Senior Notes (“Notes”) Due 2022

6 unchanged sentences

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).

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 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.

Upon conversion, the original indenture provided that the Notes may be settled, at our election, in cash or shares of our common stock or a combination of cash and shares of our common stock.

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.

1 unchanged sentence

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.

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

Issuance costs of $ 7.7 million were allocated between debt ($ 6.5 million) and equity ($ 1.2 million) components with the portion allocated to the debt presented as an offset against long-term debt in the consolidated balance sheet and being amortized as interest expense over the life of the Notes using the effective interest method.

The total interest expense recognized for the 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.

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, 2021, the total interest expense was $ 1.2 million and $ 2.5 million, respectively, which consisted of $ 0.9 million and $ 1.8 million of contractual interest expense and $ 0.3 million and $ 0.7 million of amortization of debt issuance costs.

As of July 1, 2021, the remaining 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 $ 0.9 million as of June 30, 2021 and December 31, 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.

3 unchanged sentences

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

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

Other Borrowings

1 unchanged sentence

dollars, primarily for the issuance of letters of credit.

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.

As of December 31, 2021, $ 59.6 million was outstanding under these letter-of-credit facilities.

As of December 31, 2021, the total amount available under these credit facilities was $ 15.5 million.

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

June 30, 2021

September 30, 2021

December 31, 2021

1.25% convertible notes due September 1, 2022:

7 unchanged sentences

Stock-based Compensation

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.

The 2012 Plan and the 2006 Plan are collectively referred to as the "OSI Plans."

As of December 31, 2021, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

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, 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 three months ended September 30, 2021:

As of December 31, 2021, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.8 million for stock options and $ 27.1 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 2.4 years with respect to the stock options and 1.8 years with respect to the RSUs.

The following summarizes stock option activity during the six months ended December 31, 2021:

Weighted-Average

4 unchanged sentences

Expired or forfeited

Outstanding at September 30, 2021

Exercisable at September 30, 2021

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

Outstanding at December 31, 2021

Exercisable at December 31, 2021

The following summarizes RSU award activity during the six months ended December 31, 2021:

Nonvested at June 30, 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 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.

Nonvested at December 31, 2021

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

As of December 31, 2021, there were approximately 1.4 million shares available for grant under the OSI Plan.

Under the terms of the OSI 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 136,242 and 96,620 performance-based RSUs during the three months ended September 30, 2020 and 2021, respectively.

We granted 136,242 and 96,620 performance-based RSUs during the six months ended December 31, 2020 and 2021, respectively.

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

8 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, 2021, we repurchased 168,506 shares of our common stock.

During the six months ended December 31, 2021, we repurchased 481,296 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.

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 $ 32.4 million as of September 30, 2021.

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 28.7 million as of December 31, 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 $ 0.1 million and $ 0.3 million, respectively, during the three months ended September 30, 2020 and 2021, respectively.

We made contingent payments relating to such acquisitions of $ 0.5 million and $ 0.6 million, respectively, during the three and six months ended December 31, 2020 and $ 1.0 million and $ 1.3 million, respectively, during the three and six months ended December 31,2021.

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.

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, 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):

The following table provides a roll-forward from June 30, 2021 to December 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):

Beginning fair value, June 30, 2021

3 unchanged sentences

Payments on contingent earnout obligations

Ending fair value, September 30, 2021

Ending fair value, December 31, 2021

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 and develop appropriate remedial actions.

We continue to take voluntary actions, in cooperation with the local governing agency, to 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 are 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, 2021.

We have not recorded any liability for costs related to contingent indemnification obligations as of December 31, 2021.

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

3 unchanged sentences

Legal Proceedings

In December 2017, a short seller released a report regarding our compliance with the FCPA.

Following that report, we and certain of our executive officers have been named as defendants in several lawsuits in the District Court that were filed in December 2017 and February 2018.

In December 2017, a short seller released a report regarding our compliance with the Foreign Corrupt Practices Act.

Following that report, we and certain of our executive officers have been named as defendants in several lawsuits in the United States District Court for the Central District of California ("District Court") that were filed in December 2017 and February 2018.

Each of the complaints closely tracks the allegations set forth in the short seller’s report.

2 unchanged sentences

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.

We have accrued the $ 12.5 million in Other accrued expenses and current liabilities as of December 31, 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.

11 unchanged sentences

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

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.

The effective tax rates for the three months ended December 31, 2021 and 2020 were 26.3 % and 28.6 %, respectively.

During each of the three month periods ended December 31, 2021 and 2020, we recognized a net discrete tax expense of $ 0.3 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

The effective tax rate for the six months ended December 31, 2021 and 2020 was 21.6 % and 27.7 %, respectively.

During the six months ended December 31, 2021, we recognized a net discrete tax benefit of $ 1.8 million related to equity-based compensation under ASU 2016-09 partially offset by a discrete tax expense for changes in prior year tax estimates of $ 0.2 million .

During the six months ended December 31, 2020, we recognized discrete tax expense of $ 0.1 million related to equity-based compensation under ASU 2016-09 and changes in prior year estimates .

Segment Information

6 unchanged sentences

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:

8 unchanged sentences

Intersegment eliminations

September 30,

Assets (2) —by Segment:

3 unchanged sentences

Eliminations (3)

(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.

(1) For each of the three and six month periods ended December 31, 2020 and December 31, 2021, no customer accounted for greater than 10 % of total net revenues.

(2) As of June 30, 2021 and December 31, 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.

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