What changed in this filing

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Item 1. Financial Statements

2022-04-29 compared with 2022-01-28 · 156 added, 131 removed, 500 unchanged (36% of the section changed)

5 unchanged sentences

June 30, 2021

December 31, 2021

March 31, 2022

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 17,643,903 shares at December 31, 2021

issued and outstanding , 17,854,110 shares at June 30, 2021 and 17,043,853 shares at March 31, 2022

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Net revenues:

9 unchanged sentences

Interest and other expense, net

Other income, net

Income before income taxes

7 unchanged sentences

(amounts in thousands)

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Other comprehensive income (loss):

7 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended December 31, 2020

Three Months Ended March 31, 2021

Comprehensive

Balance—September 30, 2020

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 income

Balance—December 31, 2020

Three Months Ended December 31, 2021

Other comprehensive loss

Balance—March 31, 2021

Three Months Ended March 31, 2022

Comprehensive

Balance—September 30, 2021

Exercise of stock options

Balance—December 31, 2021

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

2 unchanged sentences

Other comprehensive loss

Balance—December 31, 2021

Six Months Ended December 31, 2020

Balance—March 31, 2022

Nine Months Ended March 31, 2021

Comprehensive

7 unchanged sentences

Other comprehensive income

Balance—December 31, 2020

Six Months Ended December 31, 2021

Balance—March 31, 2021

Nine Months Ended March 31, 2022

Comprehensive

5 unchanged sentences

Repurchase of common stock

( 1,117,258 )

Taxes paid related to net share settlement of equity awards

1 unchanged sentence

Other comprehensive loss

Balance—December 31, 2021

Balance—March 31, 2022

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Six Months Ended December 31,

Nine Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

Impairment charges

Gain on sale of property and equipment

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

4 unchanged sentences

Advances from customers

Deferred revenue

Net cash provided by operating activities

3 unchanged sentences

Purchases of certificates of deposit

Proceeds from maturities of certificates of deposit

Acquisition of business, net of cash acquired

Proceeds from certificates of deposit

Acquisition of businesses, net of cash acquired

Payments for intangible and other assets

8 unchanged sentences

Taxes paid related to net share settlement of equity awards

Net cash provided by (used in) financing activities

Net cash 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 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.

The results of operations for the three and nine months ended March 31, 2022 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 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price 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 six months ended December 31, 2020 and 2021.

There was no dilutive effect of the Notes for the three and nine months ended March 31, 2021 and 2022.

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 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 $ 86.3 million at December 31, 2021.

Our cash and cash equivalents totaled $ 83.3 million at March 31, 2022.

Of this amount, approximately 79 % was held by our foreign subsidiaries and subject to repatriation tax considerations.

6 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 December 31, 2021.

The fair values of our foreign currency forward contracts were not significant as of June 30, 2021 and March 31, 2022.

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

December 31, 2021

March 31, 2022

Assets—Insurance company contracts

7 unchanged sentences

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

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

There were no net investment hedges outstanding as of June 30, 2021 and March 31, 2022.

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 and six months ended December 31, 2021 were not significant.

The amounts reported in the consolidated income statement for the three and nine months ended March 31, 2021 and 2022 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 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

Under ASC 805, Business Combinations , the acquisition method of accounting requires us to record assets acquired less liabilities assumed in an acquisition at their estimated fair values at the date of acquisition.

Any excess of the total estimated purchase consideration over the estimated fair value of the assets acquired less liabilities assumed should be recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

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

Management’s estimates of fair value are based upon assumptions 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.

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

As of June 30, 2021 and March 31, 2022, we held foreign currency forward contracts with notional amounts totaling $ 26.1 million and $ 21.0 million, respectively.

Unrealized gains and losses from our forward currency forward contracts as of March 31, 2021 and 2022 were not significant.

Recently Adopted Accounting Pronouncements

7 unchanged sentences

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.

Interest expense recognized subsequent to adoption on July 1, 2021 is 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):

4 unchanged sentences

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

Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination

In October 2021, the FASB issued Accounting Standards Update 2021-08, an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805).

This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

This authoritative guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted.

We early adopted the new guidance effective January 1, 2022 using the prospective approach and applied the amendments to both business combinations that occurred during the three months ended March 31, 2022.

The adoption of ASU 2021-08 did not have a material impact on our consolidated financial statements.

Business Combinations

Any excess of the total estimated purchase consideration over the estimated fair value of the assets acquired less liabilities assumed should be recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

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

Fiscal Year 2022 Business Acquisitions

In February 2022, we (through our Security division) acquired a privately held provider of intelligent inspection, sensory, and recognition solutions for approximately $ 14 million, plus up to $ 25 million in potential contingent consideration.

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

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

In February 2022, we (through our Security division) acquired a privately held sales and services company for approximately $ 1.1 million, plus an immaterial amount of potential contingent consideration.

The acquisition was financed with cash on hand.

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

These business acquisitions, individually and in the aggregate, were not material to our consolidated financial statements.

Accordingly, pro-forma historical results of operations and other disclosures related to these businesses have not been presented.

Balance Sheet Details

17 unchanged sentences

Property and equipment, net

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.

Depreciation and amortization expense for property and equipment was $ 5.5 million and $ 5.4 million for the three months ended March 31, 2021 and 2022, respectively, and $ 16.3 million and $ 16.0 million for the nine months ended March 31, 2021 and 2022, respectively.

Goodwill and Intangible Assets

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

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2022 were as follows (in thousands)

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of December 31, 2021

Balance as of March 31, 2022

Intangible assets consisted of the following (in thousands):

June 30, 2021

December 31, 2021

March 31, 2022

Amortizable assets:

6 unchanged sentences

Total intangible assets

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):

Amortization expense related to intangible assets was $ 4.8 million and $ 4.4 million for the three months ended March 31, 2021 and 2022, respectively.

For the nine months ended March 31, 2021 and 2022, amortization expense related to intangible assets was $ 15.1 million and $ 13.0 million, respectively.

At March 31, 2022, the estimated future amortization expense for intangible assets was as follows (in thousands):

2022 (remaining 3 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 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.

For the three months ended March 31, 2021 and 2022, we capitalized software development costs in the amounts of $ 2.6 million and $ 4.0 million, respectively.

For the nine months ended March 31, 2021 and 2022, we capitalized software development costs in the amounts of $ 9.1 million and $ 11.7 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 December 31, 2021, including the change between the periods.

The table below shows the balance of contract assets and liabilities as of June 30, 2021 and March 31, 2022, including the change between the periods.

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

5 unchanged sentences

Deferred revenue—long-term

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.

Contract assets increased during the nine months ended March 31, 2022 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 overall increase in contract liabilities was primarily due to receipt of upfront deposits from customers and 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 December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 357.0 million.

As of March 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 372.8 million.

We expect to recognize revenue on approximately 41 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter.

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.

During the nine months ended March 31, 2022, we recognized revenue of $ 53.3 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

3 unchanged sentences

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Operating lease cost

1 unchanged sentence

Short-term lease cost

Sale-leaseback Transaction.

In March 2022, we completed a sale-leaseback transaction for our manufacturing facilities and corporate headquarters in Hawthorne, California (the “Hawthorne Property”).

We sold the Hawthorne Property for $ 32 million and recognized a gain of $ 27.4 million.

We also entered into a 6-year lease agreement for the Hawthorne Property commencing March 10, 2022 and expiring on March 31, 2028, with two 5-year renewal options.

As of March 31, 2022 , we recorded a right-of-use asset and lease liability for $ 5.7 million.

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

1 unchanged sentence

June 30, 2021

December 31, 2021

March 31, 2022

Operating lease ROU assets, net

7 unchanged sentences

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

Six Months Ended December 31,

Nine Months Ended March 31,

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

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

December 31, 2021

Maturities of operating lease liabilities at March 31, 2022 were as follows (in thousands):

March 31, 2022

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 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.

During the three months ended March 31, 2022, we recognized $ 1.5 million in restructuring and other charges, which included $ 0.8 million in legal charges primarily related to class action litigation and government investigations, $ 0.4 million for employee terminations, and $ 0.3 million in acquisition related costs.

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, 2022, we recognized $ 4.8 million in restructuring and other charges, which included $ 1.0 million in employee terminations, $ 0.3 million in acquisition related costs, and $ 3.5 million in legal charges primarily related to class action litigation and government investigations.

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 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 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.

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

Three Months Ended December 31, 2020

Three Months Ended March 31, 2021

Optoelectronics and

3 unchanged sentences

Employee termination costs

Facility closures/consolidation costs (benefit)

Legal recoveries, net

Facility closures/consolidation costs

Legal costs (recoveries), net

Total expensed (benefit), net

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

2 unchanged sentences

Total expensed

Six Months Ended December 31, 2020

Nine Months Ended March 31, 2021

Optoelectronics and

6 unchanged sentences

Facility closures/consolidation costs

Legal recoveries, net

Legal costs (recoveries), net

Total expensed (benefit), net

Six Months Ended December 31, 2021

Nine Months Ended March 31, 2022

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

3 unchanged sentences

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 six-month period ended December 31, 2021 were as follows (in thousands):

The changes in the accrued liability for restructuring and other charges for the nine-month period ended March 31, 2022 were as follows (in thousands):

Consolidation

2 unchanged sentences

Payments, adjustments and reimbursements, net

Balance as of December 31, 2021

Balance as of March 31, 2022

Revolving Credit Facility

4 unchanged sentences

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).

Borrowings under the amended facility bore interest at LIBOR plus a margin of 1.0 % as of March 31, 2022 (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.

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 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).

The unused portion of the facility bore a commitment fee of 0.10 % as of March 31, 2022 (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 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.

As of March 31, 2022, there were $ 73.0 million of borrowings outstanding under the revolving credit facility, $ 85.2 million outstanding under the letters of credit sub-facility, and $ 50 million outstanding under the term loan.

As of March 31, 2022, the amount available to borrow under the revolving credit facility was $ 441.8 million and the amount available to borrow under the term loan was $ 100 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 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.

As of March 31, 2022, we were in compliance with all financial covenants under this credit facility.

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

7 unchanged sentences

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 Notes are convertible at any time 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.

8 unchanged sentences

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 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.

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 was being amortized as interest expense over the life of the Notes using the effective interest method.

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, 2022, the total interest expense was $ 1.2 million and $ 3.7 million, respectively, which consisted of $ 0.9 million and $ 2.7 million of contractual interest expense and $ 0.3 million and $ 1.0 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.

The unamortized debt issuance cost of $ 1.4 million and $ 0.6 million as of June 30, 2021 and March 31, 2022, 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.

4 unchanged sentences

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

During the three months ended March 31, 2022, we repurchased and cancelled approximately $ 40.2 million of principal value of the Notes.

We recognized a loss on debt extinguishment of $ 0.1 million during the quarter ended March 31, 2022, representing the write-off of unamortized debt issuance costs related to the portion of the Notes repurchased.

Other Borrowings

1 unchanged sentence

dollars, primarily for the issuance of letters of credit.

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.

As of March 31, 2022, $ 61.9 million was outstanding under these letter-of-credit facilities.

As of March 31, 2022, the total amount available under these credit facilities was $ 11.5 million.

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

June 30, 2021

December 31, 2021

March 31, 2022

1.25% convertible notes due September 1, 2022:

7 unchanged sentences

Stock-based Compensation

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.

As of March 31, 2022, 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 December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Cost of goods sold

2 unchanged sentences

Stock-based compensation expense

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”).

As of March 31, 2022, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.7 million for stock options and $ 20.3 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 2.2 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:

The following summarizes stock option activity during the nine months ended March 31, 2022:

Weighted-Average

4 unchanged sentences

Expired or forfeited

Outstanding at December 31, 2021

Exercisable at December 31, 2021

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

Outstanding at March 31, 2022

Exercisable at March 31, 2022

The following summarizes RSU award activity during the nine months ended March 31, 2022:

Nonvested at June 30, 2021

Nonvested at December 31, 2021

Nonvested at March 31, 2022

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.

As of March 31, 2022, 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 six months ended December 31, 2020 and 2021, respectively.

We granted 136,242 and 96,620 performance-based RSUs during the nine months ended March 31, 2021 and 2022, respectively.

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

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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 six months ended December 31, 2021, we repurchased 481,296 shares of our common stock.

During the nine months ended March 31, 2022, we repurchased 1,117,258 shares of our common stock.

As of March 31, 2022, there were 1,430,737 shares remaining available for repurchase under the authorized repurchase program.

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 $ 28.7 million as of December 31, 2021.

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 52.4 million as of March 31, 2022.

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 $ 0.5 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.

We made contingent payments relating to such acquisitions of $ 0.2 million and $ 0.9 million, respectively, during the three and nine months ended March 31, 2021 and $ 0.3 million and $ 1.7 million, respectively, during the three and nine months ended March 31,2022.

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.

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These projections and probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities.

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

The following table provides a roll-forward from June 30, 2021 to March 31, 2022 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, December 31, 2021

Ending fair value, March 31, 2022

Environmental Contingencies

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

We continue to investigate contamination of the soil and groundwater beneath the Hawthorne, California facility that resulted from unspecified on-and off-site releases occurring prior to our occupancy.

We believe the releases are of a historical nature and not uncommon to the region in general.

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

We have not accrued for loss contingencies relating to environmental matters because we believe that, although unfavorable outcomes are possible, they are not considered by our management to be probable and reasonably estimable.

If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material.

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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 December 31, 2021.

We have not recorded any liability for costs related to contingent indemnification obligations as of March 31, 2022.

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):

Six Months Ended December 31,

Nine Months Ended March 31,

Balance at beginning of period

Additions and adjustments

Reductions for warranty repair costs

Reductions for warranty repair costs and adjustments

Balance at end of period

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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.

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.

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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, which was preliminarily approved by the court on December 30, 2021.

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

We were reimbursed by insurance $ 4.5 million of the settlement amount during the quarter ended March 31, 2022 and were reimbursed the remaining $ 8.0 million in April 2022.

As of March 31, 2022, the $ 8.0 million was included as a receivable in Prepaid expenses and other current assets.

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.

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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.

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

The derivative actions have been dismissed, and the dismissal was affirmed by the 9 th Circuit Court of Appeal.

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 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 .

The effective tax rates for the three months ended March 31, 2022 and 2021 were 20.1 % and 33.7 %, respectively.

During the three month period ended March 31, 2022, we recognized a net discrete tax benefit of $ 0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

During the three months ended March 31, 2021, we recognized a net discrete tax expense of $ 2.2 million for changes in prior year tax estimates of $ 2.4 million, offset by a discrete tax benefit of ($ 0.2 ) million for equity-based compensation under ASU 2016-09.

The effective tax rate for the nine months ended March 31, 2022 and 2021 was 20.8 % and 30.1 %, respectively.

During the nine months ended March 31, 2022, we recognized a net discrete tax benefit of $ 2.0 million related to equity-based compensation under ASU 2016-09 .

During the nine months ended March 31, 2021, we recognized a net discrete tax expense of $ 2.3 million for changes in prior year tax estimates of $ 2.8 million, offset by a ($ 0.5 ) million tax benefit from equity-based compensation under ASU 2016-09.

Segment Information

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Revenues (1) —by Segment:

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Eliminations (3)

(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.

(1) For each of the three and nine month periods ended March 31, 2021 and March 31, 2022, no customer accounted for greater than 10 % of total net revenues.

(2) As of June 30, 2021 and March 31, 2022, 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