What changed in this filing

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Item 1. Financial Statements

2023-01-27 compared with 2022-10-28 · 150 added, 107 removed, 445 unchanged (37% of the section changed)

4 unchanged sentences

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

June 30, 2022

September 30, 2022

CURRENT ASSETS:

23 unchanged sentences

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

issued and outstanding, 16,870,050 shares at June 30, 2022 and 16,854,153 shares at September 30, 2022

issued and outstanding , 16,870,050 shares at June 30, 2022 and 16,819,609 shares at December 31, 2022

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:

18 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Other comprehensive loss:

Three Months Ended December 31,

Six Months Ended December 31,

Other comprehensive income (loss):

Foreign currency translation adjustment, net of tax

Net unrealized gain on investments and derivatives, net of tax

Net unrealized gain (loss) on investments and derivatives, net of tax

Other, net of tax

Other comprehensive loss

Other comprehensive income (loss)

Comprehensive income

4 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended September 30, 2021

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

Three Months Ended December 31, 2022

Comprehensive

Balance—September 30, 2022

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 income

Balance—December 31, 2022

Six Months Ended December 31, 2021

Comprehensive

Balance—June 30, 2021

7 unchanged sentences

Other comprehensive loss

Balance—September 30, 2021

Three Months Ended September 30, 2022

Balance—December 31, 2021

Six Months Ended December 31, 2022

Comprehensive

7 unchanged sentences

Other comprehensive loss

Balance—September 30, 2022

Balance—December 31, 2022

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 for (recovery of) losses on accounts receivable

Recovery of losses on accounts receivable

Deferred income taxes

7 unchanged sentences

Deferred revenue

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

13 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, 2022 filed with the SEC.

The results of operations for the three months ended September 30, 2022 are not necessarily indicative of the operating results to be expected for the full 2023 fiscal year or any future periods.

The results of operations for the three and six months ended December 31, 2022 are not necessarily indicative of the operating results to be expected for the full 2023 fiscal year or any future periods.

Use of Estimates

8 unchanged sentences

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 $ 54.0 million at September 30, 2022.

Our cash and cash equivalents totaled $ 45.6 million at December 31, 2022.

Of this amount, approximately 98 % 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, Singapore, Malaysia, Canada and India, and to a lesser extent in Australia, Albania, Indonesia and Mexico among other countries.

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

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

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

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

Fair Value of Financial Instruments

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

The carrying values of financial instruments, other than long term debt instruments and interest rate swap contract, are representative of their fair values due to their short-term maturities.

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

The carrying values of financial instruments, other than long term debt instruments and the interest rate swap contract, are representative of their fair values due to their short-term maturities.

The carrying values of our long-term debt instruments are considered to approximate their fair values 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 June 30, 2022 and September 30, 2022.

The fair values of our foreign currency forward contracts were not significant as of June 30, 2022 and December 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, 2022

September 30, 2022

December 31, 2022

Assets—Insurance company contracts

10 unchanged sentences

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations.

The amounts reported in the consolidated statements of operations for the three months ended September 30, 2021 and 2022 were not significant.

The amounts reported in the consolidated statements of operations for the three and six months ended December 31, 2021 and 2022 were not significant.

The fair value of our foreign currency forward 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, 2022 and September 30, 2022, we held foreign currency forward contracts with notional amounts totaling $ 22.9 million and $ 17.6 million, respectively.

Unrealized gains and losses from our foreign currency forward contracts as of September 30, 2021 and 2022 were not significant.

As of June 30, 2022 and December 31, 2022, we held foreign currency forward contracts with notional amounts totaling $ 22.9 million and $ 19.8 million, respectively.

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

The interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to our variable, Secured Overnight Financing Rate (“SOFR”) based debt.

The interest rate swap matures in December 2026.

The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of Other comprehensive loss in the consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings.

The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of other comprehensive income (loss) in the consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings.

A qualitative and quantitative assessment over the hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

As of June 30, 2022 and September 30, 2022, the notional amount of the derivative instruments designated as an interest rate swap hedge was $ 0 and $ 175 million, respectively.

The fair value of the interest rate swap contract as of September 30, 2022 was $ 3.5 million and recorded in Other assets within the condensed consolidated balance sheet.

The effect of the cash flow hedges on other comprehensive loss and earnings for the periods presented was as follows:

September 30,

As of June 30, 2022 and December 31, 2022, the notional amount of the derivative instruments designated as an interest rate swap hedge was $ 0 and $ 175 million, respectively.

The fair value of the interest rate swap contract as of December 31, 2022 was $ 3.3 million and is recorded in Other assets within the condensed consolidated balance sheet.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:

Three Months Ended December 31,

Six Months Ended December 31,

Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded

Amount recognized in other comprehensive loss

Amount reclassified from accumulated other comprehensive loss to interest expense, net

Gain (loss) recognized in other comprehensive income (loss)

Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net

Recently Adopted Accounting Pronouncements

3 unchanged sentences

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 year ended June 30, 2022 and the business combination that occurred during the quarter ended September 30, 2022.

We early adopted the new guidance effective January 1, 2022 using the prospective approach and applied the amendments to the business combinations that occurred during the year ended June 30, 2022 and the six months ended December 31, 2022.

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

Business Combinations

Under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805"), the acquisition method of accounting requires us to record assets acquired less liabilities assumed from an acquisition at their estimated fair values at the date of acquisition.

Under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition method of accounting requires us to record assets acquired less liabilities assumed from an acquisition at their estimated fair values at the date of acquisition.

Any excess of the total estimated purchase price over the estimated fair value of the net assets acquired should be recorded as goodwill.

3 unchanged sentences

During the measurement period, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available for preliminary estimates, we may record adjustments to the preliminary assets acquired and liabilities assumed.

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

Fiscal Year 2023 Business Acquisition

In August 2022, we (through our Security division) acquired a privately held provider of training software and solutions for approximately $ 1.9 million, plus up to $ 0.5 million in potential contingent consideration.

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

Fiscal Year 2023 Business Acquisitions

In December 2022, we (through our Security division) acquired in a bankruptcy proceeding certain assets of a provider of baggage and parcel inspection systems for approximately $ 1.6 million.

The acquisition was financed with cash on hand.

In August 2022, we (through our Security division) acquired a privately held provider of training software and solutions for approximately $ 1.9 million plus an immaterial amount of potential contingent consideration.

The acquisition was financed with cash on hand.

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

3 unchanged sentences

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.

We (through our Security division) also acquired in February 2022 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.

4 unchanged sentences

The following tables set forth 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 $ 5.3 million and $ 4.9 million for the three months ended September 30, 2021 and 2022, respectively.

Depreciation and amortization expense for property and equipment was $ 5.3 million and $ 4.8 million for the three months ended December 31, 2021 and 2022, respectively, and $ 10.6 million and $ 9.7 million for the six months ended December 31, 2021 and 2022, respectively.

Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2022 were as follows (in thousands)

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

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of September 30, 2022

Balance as of December 31, 2022

Intangible assets consisted of the following (in thousands):

June 30, 2022

September 30, 2022

December 31, 2022

Amortizable assets:

6 unchanged sentences

Total intangible assets

Amortization expense related to intangible assets was $ 4.4 million and $ 4.7 million for the three months ended September 30, 2021 and 2022, respectively.

At September 30, 2022, the estimated future amortization expense for intangible assets was as follows (in thousands):

Amortization expense related to intangible assets was $ 4.2 million and $ 4.8 million for the three months ended December 31, 2021 and 2022, respectively.

For the six months ended December 31, 2021 and 2022, amortization expense related to intangible assets was $ 8.6 million and $ 9.4 million, respectively.

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

2023 (remaining 6 months)

4 unchanged sentences

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

For the three months ended September 30, 2021 and 2022, we capitalized software development costs in the amounts of $ 4.1 million and $ 3.9 million, respectively.

For the three months ended December 31, 2021 and 2022, we capitalized software development costs in the amounts of $ 3.6 million and $ 4.0 million, respectively.

For the six months ended December 31, 2021 and 2022, we capitalized software development costs in the amounts of $ 7.7 million and $ 7.9 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, 2022 and September 30, 2022, including the change between the periods.

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

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

Contract Assets (in thousands)

September 30,

Unbilled revenue (included in accounts receivable, net)

Contract Liabilities (in thousands)

September 30,

Advances from customers

1 unchanged sentence

Deferred revenue—long-term

Contract assets increased during the three months ended September 30, 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.

Contract assets increased during the six months ended December 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.

1 unchanged sentence

Remaining performance obligations related to ASC 606 represent the portion of the 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, 2022, the portion of the transaction price allocated to remaining performance obligations was approximately $ 404.0 million.

As of December 31, 2022, the portion of the transaction price allocated to remaining performance obligations was approximately $ 338.9 million.

We expect to recognize revenue on approximately 58 % 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, 2022, we recognized revenue of $ 16.5 million from contract liabilities existing at the beginning of the period.

During the six months ended December 31, 2022, we recognized revenue of $ 37.5 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, 2022

September 30, 2022

December 31, 2022

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, 2022 were as follows (in thousands):

September 30, 2022

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

December 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 September 30, 2022, we recognized $ 1.2 million in restructuring and other charges, which included $ 0.9 million in legal charges and $ 0.3 million for employee terminations.

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 December 31, 2022, we recognized $ 2.3 million in restructuring and other charges, which included $ 1.9 million in legal charges primarily related to government investigations and $ 0.2 million for employee terminations.

During the six months ended December 31, 2022, we recognized $ 3.5 million in restructuring and other charges, which included $ 2.9 million in legal charges primarily related to government investigations and $ 0.5 million for employee terminations.

During the three months ended December 31, 2021, we recognized $ 0.8 million in restructuring and other charges, which 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 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.

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

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

Optoelectronics and

4 unchanged sentences

Legal costs, net

Three Months Ended September 30, 2022

Total expensed

Three Months Ended December 31, 2022

Optoelectronics and

4 unchanged sentences

Legal costs, net

Six Months Ended December 31, 2021

Optoelectronics and

Manufacturing

Security Division

Employee termination costs

Facility closures/consolidation

Legal costs, net

Total expensed

Six Months Ended December 31, 2022

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Legal costs, net

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, 2022 were as follows (in thousands):

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

Consolidation

2 unchanged sentences

Payments, adjustments and reimbursements, net

Balance as of September 30, 2022

Balance as of December 31, 2022

Revolving Credit Facility

3 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 SOFR plus a margin of 1.0 % as of September 30, 2022 (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 SOFR plus a margin of 1.25 % as of December 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).

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 September 30, 2022 (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 0.15 % as of December 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 September 30, 2022, there were $ 215 million of borrowings outstanding under the revolving credit facility, $ 67.2 million outstanding under the letters of credit sub-facility, and $ 150 million outstanding under the term loan.

As of September 30, 2022, the amount available to borrow under the revolving credit facility was $ 317.8 million.

As of December 31, 2022, there were $ 235 million of borrowings outstanding under the revolving credit facility, $ 66.8 million outstanding under the letters of credit sub-facility, and $ 146.9 million outstanding under the term loan.

As of December 31, 2022, the amount available to borrow under the revolving credit facility was $ 298.2 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 September 30, 2022, we were in compliance with all financial covenants under this credit facility.

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

In September 2022, we entered into an interest rate swap in order to mitigate the interest rate risk on a portion of the interest payments expected to be made on the borrowings outstanding under the revolving credit facility and term loan.

3 unchanged sentences

The Notes were governed by an indenture dated February 22, 2017.

The maturity for the payment of principal was September 1, 2022.

The maturity date for the payment of principal was September 1, 2022.

The Notes bore interest at the rate of 1.25 % and were payable in cash semiannually in arrears on each March 1 and September 1.

On September 1, 2022, we repurchased and cancelled the remaining $ 242.3 million balance of the Notes.

On September 1, 2022, we repurchased and cancelled the then-remaining $ 242.3 million balance of the Notes utilizing proceeds from the senior secured credit facility.

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 months ended September 30, 2021 related to the Notes was $ 1.2 million, which consisted of $ 0.9 million of contractual interest expense and $ 0.3 million of amortization of debt issuance costs.

Total interest expense recognized for the three months ended September 30, 2022 related to the Notes was $ 0.7 million, which consisted of $ 0.5 million of contractual interest expense, and $ 0.2 million of amortization of debt issuance costs.

Total interest expense recognized for the three and six months ended December 31, 2021 related to the Notes was $ 1.2 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.

Total interest expense recognized for the three and six months ended December 31, 2022 related to the Notes was nil and $ 0.7 million, respectively, which consisted of $ 0.5 million of contractual interest expense and $ 0.2 million of amortization of debt issuance costs.

Other Borrowings

1 unchanged sentence

dollars, primarily for the issuance of letters of credit.

As of September 30, 2022, $ 58.8 million was outstanding under these letter-of-credit facilities.

As of September 30, 2022, the total amount available under these credit facilities was $ 5.9 million.

As of December 31, 2022, $ 48.5 million was outstanding under these letter-of-credit facilities.

As of December 31, 2022, the total amount available under these credit facilities was $ 20.5 million.

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

September 30,

1.25% convertible notes due September 1, 2022:

6 unchanged sentences

Stock-based Compensation

As of September 30, 2022, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

As of December 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 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, 2022, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.5 million for stock options and $ 31.9 million for restricted stock units (“RSUs”).

As of December 31, 2022, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 1.0 million for stock options and $ 27.4 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 three months ended September 30, 2022:

The following summarizes stock option activity during the six months ended December 31, 2022:

Weighted-Average

4 unchanged sentences

Expired or forfeited

Outstanding at September 30, 2022

Exercisable at September 30, 2022

The following summarizes RSU award activity during the nine months ended September 30, 2022:

Outstanding at December 31, 2022

Exercisable at December 31, 2022

The following summarizes RSU award activity during the six months ended December 31, 2022:

Nonvested at June 30, 2022

Nonvested at September 30, 2022

As of September 30, 2022, there were approximately 0.8 million shares available for grant under the OSI Plan.

Nonvested at December 31, 2022

As of December 31, 2022, there were approximately 0.8 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 96,620 and 109,594 performance-based RSUs during the three months ended September 30, 2021 and 2022, respectively.

We granted 96,620 and 110,811 performance-based RSUs during the six months ended December 31, 2021 and 2022, respectively.

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

9 unchanged sentences

If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.

During the three months ended September 30, 2022, we repurchased 208,427 shares of our common stock.

As of September 30, 2022, there were 1,913,673 shares remaining available for repurchase under the authorized repurchase program.

During the six months ended December 31, 2022, we repurchased 261,761 shares of our common stock.

As of December 31, 2022, there were 1,860,339 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.

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 obligations that are capped, the remaining maximum amount of such potential future payments is $ 51.2 million as of September 30, 2022.

For agreements that contain contingent consideration obligations that are capped, the remaining maximum amount of such potential future payments is $ 50.0 million as of December 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 $ 0.3 million and $ 0.4 million, during the three months ended September 30, 2021 and 2022.

We made contingent payments relating to such acquisitions of $ 1.0 million and $ 1.3 million, respectively, during the three and six months ended December 31, 2021 and $ 1.8 million and $ 2.2 million, respectively, during the three and six months ended December 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.

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, 2022 to September 30, 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):

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

3 unchanged sentences

Payments on contingent earnout obligations

Ending fair value, September 30, 2022

Ending fair value, December 31, 2022

Environmental Contingencies

10 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, 2022.

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

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

9 unchanged sentences

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

The effective tax rates for the three months ended September 30, 2021 and 2022 were 15.9 % and 24.4 %, respectively.

During the three month period ended September 30, 2021 and 2022, we recognized a net discrete tax benefit of $ 2.1 million and $ 0.1 million, respectively, related to equity-based compensation under ASU 2016-09.

The effective tax rates for the three months ended December 31, 2021 and 2022 were 26.3 % and 19.5 %, respectively.

During the three month period ended December 31, 2021, 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.

During the three month period ended December 31, 2022, we recognized a net discrete tax benefit of $ 0.4 million related to equity-based compensation under ASU 2016-09 and a benefit of $ 0.4 million from changes in prior year estimates.

The effective tax rate for the six months ended December 31, 2021 and 2022 was 21.6 % for both periods.

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, 2022, we recognized discrete tax benefit of $ 0.5 million related to equity-based compensation under ASU 2016-09 and $ 0.4 million from changes in prior year estimates .

Segment Information

4 unchanged sentences

Sales between divisions are at transfer prices that approximate market values.

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

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

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

Three Months Ended September 30,

Three Months Ended

Six Months Ended

Revenues (1) —by Segment:

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Intersegment eliminations

September 30,

Assets (2) —by Segment:

3 unchanged sentences

Eliminations (3)

(1) For each of the three month periods ended September 30, 2021 and 2022, no customer accounted for greater than 10 % of total net revenues.

(2) As of June 30, 2022 and September 30, 2022, no customer accounted for greater than 10 % of accounts receivable.

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

(2) As of June 30, 2022 and December 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.

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