What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-08-29 compared with 2022-08-19 · 253 added, 234 removed, 1128 unchanged (30% of the section changed)

7 unchanged sentences

Based on that evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2023.

Moss Adams LLP, an independent registered public accounting firm, has audited and reported on the consolidated financial statements of OSI Systems, Inc.

and on the effectiveness of our internal control over financial reporting.

The report of Moss Adams LLP is contained in this annual report.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2023 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (Grant Thornton LLP, Los Angeles, CA, PCAOB ID:

Report of Independent Registered Public Accounting Firm (Grant Thornton LLP, Los Angeles, CA)

Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Los Angeles, CA, PCAOB ID:

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

OSI Systems, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of OSI Systems, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year ended June 30, 2023, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for the year ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated August 29, 2023 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Determination of standalone selling price - Security Segment Product Revenue

As described in Note 1 to the consolidated financial statements, the Company’s revenue contracts in the security segment may include multiple performance obligations, which are accounted for separately when they are distinct.

The Company derives revenues in the security segment mainly from sales of products, installation, project management and training services.

The Company allocates the transaction price to the distinct performance obligations on a relative stand-alone selling price basis and recognizes revenue when control is transferred.

Product revenues are recognized at the point in time when product has been delivered.

Auditing the Company’s product revenue stand-alone selling price in the security segment was complex due to the subjectivity of the assumptions that were used in developing the stand-alone selling price of distinct performance obligations.

Evaluating the appropriateness of these assumptions requires extensive audit effort due to the complexity of these contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

We obtained an understanding, evaluated design and tested the operating effectiveness of internal controls related to the determination of the stand-alone selling prices related to the security segment.

To test management’s determination of stand-alone selling price for each performance obligation, we performed procedures to evaluate the methodology applied.

We evaluated the Company’s analysis of stand-alone selling price, including inspecting a sample of executed contracts.

For the sample selected we evaluated the contracts to determine the appropriateness of the method used and the underlying data including cost details and margin percentages to estimate the stand-alone selling price.

/s/ Grant Thornton LLP

We have served as the Company’s auditor since 2023.

Los Angeles, California

August 29, 2023

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

OSI Systems, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of OSI Systems, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended June 30, 2023, and our report dated August 29, 2023 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Grant Thornton LLP

We have served as the Company’s auditor since 2023.

Los Angeles, California

August 29, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

OSI Systems, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of OSI Systems, Inc.

and subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Opinions on the Financial Statements

We have audited the accompanying consolidated balance sheet of OSI Systems, Inc.

and subsidiaries (the “Company”) as of June 30, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

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Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

The Company’s management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition - Security Division

As described in Note 1 to the consolidated financial statements, the Company’s contracts with customers in its Security division may contain multiple performance obligations and frequently include an obligation to deliver an equipment product.

Revenue is recognized when control of each distinct performance obligation is transferred to the customer.

Revenues for the Security division were $663.2 million for the year ended June 30, 2022.

The Company’s revenue recognition for the Security division requires subjective considerations, particularly related to the identification and determination of the timing of revenue recognition for delivery of products, due to contractual terms and conditions that required judgment to determine when control of the product was deemed to be transferred to the customer.

We identified the auditing of the transfer of control of equipment products to be a critical audit matter.

The primary procedures we performed to address this critical audit matter included:

● Testing the design, implementation, and operating effectiveness of controls relating to revenue occurrence, including controls over the timing of revenue recognition;

● Performing substantive tests over the timing and occurrence of revenue recognition, which included, among other procedures, reading the executed contract or purchase order to understand the contract, evaluating the contract-specific terms and the reasonableness of the Company’s judgments about the transfer of control of the performance obligation, and obtaining evidence that the transfer of control had occurred for the revenue recognized.

/s/ Moss Adams LLP

1 unchanged sentence

August 19, 2022

We have served as the Company’s auditor since 2006.

We served as the Company’s auditor from 2006 to 2023.

OSI SYSTEMS, INC.

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Shares issued under employee stock purchase program

Stock compensation expense

Stock-based compensation

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Other comprehensive income

Balance-June 30, 2021

Exercise of stock options

Vesting of restricted stock/RSUs

Vesting of RSUs

Shares issued under employee stock purchase program

Stock compensation expense

Stock-based compensation

Repurchase of common stock

( 1,294,594 )

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Adoption of ASU 2020-06 for convertible notes

Other comprehensive loss

Balance-June 30, 2022

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Shares issued under employee stock purchase program

Stock compensation expense

Stock-based compensation

Repurchase of common stock

( 1,294,594 )

Taxes paid related to net share settlement of equity awards

Adoption of ASU 2020-06 for convertible notes

Other comprehensive loss

Other comprehensive income

Balance-June 30, 2023

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Acquisition of businesses, net of cash acquired

Acquisition of intangible and other assets

Payments for intangible and other assets

Net cash used in investing activities

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Through our Security segment, we provide security screening products and related services globally.

These products fall into the following categories:

baggage and parcel inspection;

cargo and vehicle inspection;

hold (checked) baggage screening;

people screening;

radiation detection;

and explosive and narcotics trace detection.

These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband.

In addition to these products, we also provide site design, installation, training and technical support services to our customers.

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Through our Healthcare segment, we design, manufacture, market and service patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories globally.

These products are used by care providers in critical care, emergency and perioperative areas within hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers, among others.

Through our Optoelectronics and Manufacturing segment, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, X-ray security and inspection systems and medical imaging, chemistry analysis and diagnostics instruments, telecommunications, scanners and industrial automations, internet of things (IoT) and consumer wearable products.

This division provides products and services to OEM customers and end users as well as to our Security and Healthcare divisions.

These products are used by care providers in critical care, emergency and perioperative areas within the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient’s bedside, in another area of the hospital or even outside the hospital.

Through our Optoelectronics and Manufacturing segment, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation and consumer products.

This division provides products and services to OEM customers and to our own Security and Healthcare divisions.

Consolidation —The consolidated financial statements include the accounts of OSI Systems, Inc.

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

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

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

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

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Cash and Cash Equivalents —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 $ 64.2 million at June 30, 2022.

Of this amount, approximately 78 % 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, India, and Australia, and to a lesser extent in Albania and Germany among other countries.

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

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

OSI SYSTEMS, INC.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

Our cash and cash equivalents totaled $ 76.8 million at June 30, 2023.

Of this amount, approximately 97 % 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, Qatar, Singapore, India, Malaysia and Canada, and to a lesser extent in Indonesia, Australia, Germany and Mexico among other countries.

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

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

Accounts Receivable —We monitor collections and payments from our customers, and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

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Goodwill and Other Intangible Assets and Valuation of Long-Lived Assets —Goodwill represents the excess purchase price over the estimated fair value of the assets acquired and liabilities assumed in a business combination.

Goodwill is allocated to our segments based on the nature of the product line of the acquired business.

Goodwill is allocated to our reporting units based on the nature of the product line of the acquired business.

The carrying value of goodwill is not amortized but is annually tested for impairment as of the end of the second quarter and more frequently if there is an indicator of impairment.

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The assessments conducted as of December 31, 2022 indicated that it is not more likely than not that the fair values of our three reporting units are less than their carrying amounts, including goodwill.

Despite the COVID-19 pandemic, there were no qualitative factors which would trigger impairment testing between measurement dates.

There were no qualitative factors which would trigger impairment testing between measurement dates.

Thus, we have determined that there is no goodwill impairment for any of the three reporting units.

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See Note 10 for additional information.

Fair Value of Financial Instruments —Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments and foreign currency forward contracts.

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

The carrying values of our long-term debt instruments are considered to approximate their fair values 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.

OSI SYSTEMS, INC.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

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 fair values of our foreign currency forward contracts were not significant as of June 30, 2023.

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.

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Assets—Insurance company contracts

Assets—Interest rate swap contract

Liabilities—Convertible debt

Liabilities—Contingent consideration

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2022

Derivative Instruments and Hedging Activity —Our use of derivatives consists of foreign currency forward contracts.

These forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations.

Derivative Instruments and Hedging Activity —Our use of derivatives consists of foreign currency forward contracts and an interest rate swap contract.

The foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations.

These contracts have original maturities of up to three months.

We also manage our risk to changes in interest rates using derivative instruments.

We use fixed interest rate swaps to effectively convert a portion of the variable interest rate payments to fixed interest rate payments.

We do not use hedging instruments for speculative purposes.

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Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2022 and 2023 were not significant.

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2023

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 income in the consolidated financial statements and are reclassified as net income when the underlying hedged interest expense 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 2023, 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 June 30, 2023 was $ 5.4 million and is recorded in Other assets within the consolidated balance sheet.

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

Fiscal Year Ended June 30,

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

Gain recognized in other comprehensive income

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

Revenue Recognition

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Deferred revenue for such services arises from payments received from customers for services not yet performed.

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2022

Contract Revenue.

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We recognize contract liabilities and deferred revenue as net sales after all revenue recognition criteria are met.

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2023

When determining revenue recognition for contracts, we make judgments based on our understanding of the obligations in each contract.

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Certain agreements with customers include the sale of capital equipment involving multiple elements that may include civil works to prepare a site for the installation of equipment, manufacture and delivery of equipment, installation and integration of equipment, training of customer personnel to operate the equipment and after-market service of the equipment.

We generally separate multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract.

We generally assign multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract.

If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation.

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Refer to Note 14 for additional details of revenues by reporting segment.

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2022

Contract Assets and Liabilities.

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

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2023

Practical Expedients.

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In fiscal years 2021 and 2022, no customer accounted for greater than 10 % of revenues.

In fiscal year 2023, one customer accounted for 11 % of revenues.

We perform ongoing credit evaluations of our customers’ financial condition and maintain allowances for potential credit losses.

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Non-monetary assets and liabilities are translated using historical exchange rates.

Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a gain (loss) of approximately $( 3.4 ) million, $( 1.3 ) million and $ 0.6 million for the fiscal years ended June 30, 2020, 2021 and 2022, respectively.

Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a net gain (loss) of approximately $ ( 1.3 ) million, $ 0.6 million and $ 2.0 million for the fiscal years ended June 30, 2021, 2022 and 2023, respectively.

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

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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.

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.

During the measurement period, which is until we have all the necessary information about the facts and circumstances that existed as of the acquisition date 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 provisional amounts initially recorded for assets acquired and liabilities assumed.

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

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In periods where a net loss is reported, basic and diluted net loss per share are the same since the effect of potential common shares is antidilutive and therefore excluded.

The underlying equity component of the 1.25 % convertible senior notes due 2022 (the “Notes”) discussed in Note 8 to the 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 years ended June 30, 2020, 2021 and 2022.

There was no dilutive effect of the senior convertible notes (See Note 8) for the fiscal years ended June 30, 2021, 2022 and 2023.

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

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We also elected the hindsight practical expedient, which allows us to use hindsight in determining the lease term.

We do not record an ROU asset and corresponding lease liability for leases with an initial term of one year or less (“short-term leases”).

We do not record a ROU asset and corresponding lease liability for leases with an initial term of one year or less (“short-term leases”).

The terms in our leases may include options to extend or terminate the lease.

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Subsequent Events — In accordance with ASC 855, our management evaluated material events after the balance sheet date through the date of the filing of this report with the SEC, and there are no disclosable subsequent events.

Recent Accounting Guidance

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates.

Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption.

OSI SYSTEMS, INC.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

Convertible Debt

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

Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital.

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

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

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

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

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

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):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

ASU 2019-12 removes certain exceptions to the general principles of ASC 740 and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance.

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

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

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

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 year ended June 30, 2022.

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

BUSINESS COMBINATIONS

Fiscal Year 2023 Business Acquisitions

In April 2023, we (through our Optoelectronics and Manufacturing division) acquired a privately held provider of engineering and contract manufacturing solutions for approximately $ 2.5 million plus up to $ 2.5 million in potential contingent consideration.

The acquisition was financed with cash on hand.

In February 2023, we (through our Healthcare division) acquired a privately held provider of software and solutions for approximately $ 2.1 million plus up to $ 5.0 million in potential contingent consideration.

The acquisition was financed with cash on hand.

Through our Security division, we acquired (i) in December 2022 certain assets of a provider of baggage and parcel inspection systems for approximately $ 1.6 million and (ii) in August 2022 a privately held provider of training software and solutions for approximately $ 1.9 million plus an immaterial amount of potential contingent consideration.

These acquisitions were financed with cash on hand.

The goodwill recognized for each of the fiscal year 2023 business acquisitions is not deductible for income tax purposes.

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 $ 14.0 million, plus up to $ 25.0 million in potential contingent consideration.

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

Fiscal Year 2021 Business Acquisition

In fiscal 2021, we (through our Healthcare division) acquired a privately-held software development company for $ 3.0 million, plus up to $ 12.0 million in potential contingent consideration.

This acquisition was financed with available cash on hand.

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

These business acquisitions in fiscal 2021, 2022 and 2023, 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.

OSI SYSTEMS, INC.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

In fiscal 2021, we (through our Healthcare division) acquired a privately-held software development company for $ 3.0 million, plus up to $ 12.0 million in potential contingent consideration.

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

This acquisition was financed with available cash on hand.

In fiscal 2020, we paid an aggregate of $ 8.9 million, plus potential future contingent consideration of an immaterial amount, for four business acquisitions.

The goodwill recognized for these businesses are deductible for income tax purposes.

These acquisitions were financed with available cash on hand.

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

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Balance as of June 30, 2023

Intangible assets consisted of the following (amounts in thousands):

Intangible assets consisted of the following (dollar amounts in thousands):

June 30, 2022

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

Contract Assets (in thousands)

Contract Assets (dollar amounts in thousands)

Unbilled revenue (included in accounts receivable, net)

Contract Liabilities (in thousands)

Contract Liabilities (dollar amounts in thousands)

Advances from customers

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Deferred revenue—long-term

Contract Assets.

Contract assets increased approximately $ 43.5 million as a result of unbilled revenue primarily from the timing and nature of milestones met in contracts for a number of customers in our Security Division, both within the United States and internationally, where we met the revenue recognition criteria under ASC 606 in advance of the time when contracts give us the right to invoice customers.

Remaining Performance Obligations .

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We expect to recognize revenue on approximately 55 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter.

During the year ended June 30, 2022, we recognized revenue of $ 65.7 million from contract liabilities existing as of July 1, 2021.

During the fiscal year ended June 30, 2023, we recognized revenue of $ 50.9 million from contract liabilities existing as of July 1, 2022.

Practical Expedients.

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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 on sale of $ 27.4 million which is included in Other income on the statement of operations.

We sold the Hawthorne Property for $ 32 million and recognized a gain on sale of $ 27.4 million which is included in Other income on the statement of operations for the fiscal year ended June 30, 2022.

We also entered into a 6-year lease agreement for the Hawthorne Property expiring in March 2028, with two 5-year renewal options.

As of June 30, 2022, we recorded the related ROU asset and lease liability for $ 5.7 million.

Supplemental balance sheet assets and liabilities related to operating leases were as follows (in thousands):

Supplemental balance sheet assets and liabilities related to operating leases were as follows (dollar amounts in thousands):

Balance Sheet Category

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ROU assets obtained in exchange for new lease obligations

Maturities of operating lease liabilities under ASC 842 Leases at June 30, 2022 were as follows (in thousands):

Maturities of operating lease liabilities at June 30, 2023 were as follows (in thousands):

June 30, 2023

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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 fiscal year ended June 30, 2023, we recognized $ 7.6 million in impairment, restructuring and other charges, which included $ 3.9 million in legal charges primarily related to class action litigation and government investigations, $ 1.7 million for employee terminations, $ 1.5 million for other facility closure costs for operational efficiency activities, and $ 0.4 million in acquisition related costs.

During the fiscal year ended June 30, 2022, we recognized $ 7.5 million in impairment, restructuring and other charges, which included $ 5.1 million in legal charges primarily related to class action litigation and government investigations, $ 1.1 million for employee terminations, $ 1.0 million for impairment of software assets, $ 0.3 million in acquisition related costs, and a net benefit for facility closures activity of a nominal amount.

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We also incurred costs of $ 1.6 million for other employee terminations and $ 0.5 million for other facility closure costs for operational efficiency activities, $ 0.3 million for acquisition-related activities, and $ 0.5 million for certain legal charges, net of insurance reimbursements.

During fiscal year ended June 30, 2020, we incurred $ 0.4 million in costs for professional fees relating to acquisitions, $ 4.0 million in employee termination costs as part of operational efficiency initiatives, and $ 0.2 million in costs associated with the consolidation of facilities in our Security division.

Additionally, legal fees and settlement costs resulted in a net recovery of $ 3.6 million as a result of insurance reimbursements of certain legal costs.

During the year ended June 30, 2020, we also impaired an intangible asset for IPR&D in the Security division due to a strategic shift in the direction of the project and abandoned a non-core product line in our Healthcare division which resulted in the write-off of assets, including intangible and fixed assets.

As a result, $ 5.5 million of assets, including intangible and fixed assets, were written off as we determined that these assets had no value and were permanently impaired.

These impairment charges were included in impairment, restructuring and other charges in our consolidated statements of operations.

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

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Employee termination costs

Mexico transaction costs

Facility closures/consolidation

Legal costs (recoveries), net

Legal costs, net

Total expensed

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Employee termination costs

Mexico transaction costs

Facility closures/consolidation

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Manufacturing

Impairment charges

Acquisition-related costs

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Balance as of June 30, 2021

Restructuring and other charges, net

Restructuring and other charges (benefit), net

Payments, adjustments and reimbursements, net

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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 June 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).

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

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

Under certain circumstances and subject to certain conditions, we can increase the revolving credit facility by $ 250 million plus such amount as would not cause our consolidated secured net leverage ratio to exceed a specified level.

Borrowings under the amended facility bore interest at SOFR plus a margin of 1.0 % as of June 30, 2023 (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.

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As of June 30, 2023, there were $ 215.0 million of borrowings outstanding under the revolving credit facility, $ 48.5 million outstanding under the letters of credit sub-facility, and $ 143.1 million outstanding under the term loan.

As of June 30, 2022, the amount available to borrow under the revolving credit facility was $ 461.5 million and the amount available to borrow under the term loan was $ 100 million.

As of June 30, 2023, the amount available to borrow under the revolving credit facility was $ 336.5 million.

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

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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,

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 June 30, 2023, 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.

Refer to Note 1 for details.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

borrowings under the revolving credit facility are included in current liabilities.

As of June 30, 2022, we were in compliance with all financial covenants under this credit facility.

1.25% Convertible Senior Notes Due 2022

In February 2017, we issued $ 287.5 million of the Notes in a private offering.

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

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

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

The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes;

equal in right of payment to any of our unsecured indebtedness that is not so subordinated;

effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries as well as any of our existing and future indebtedness that may be guaranteed by our subsidiaries to the extent of such guarantees (including the guarantees of certain of our subsidiaries under our existing credit facility).

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.

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 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 and cash in lieu of fractional shares.

We may redeem the Notes if the last reported sale price of our Common Stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days.

If we undergo a fundamental change, as defined in the indenture for the Notes, subject to certain conditions, holders of the Notes may require us to repurchase all or part of the Notes for cash at a price equal to 100 % of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The occurrence of a fundamental change will also result in the Notes becoming immediately convertible.

Since the last reported sales price of our Common Stock did not exceed 130 % of the conversion price for at least 20 trading days within any applicable period of 30 consecutive trading days, 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 represented the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes.

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

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 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 year ended June 30, 2020 related to the Notes was $ 13.0 million, which consisted of $ 3.6 million of contractual interest expense for each year, $ 8.2 million of debt discount amortization, and $ 1.2 million of amortization of debt issuance costs.

Total interest expense recognized for the year ended June 30, 2021 related to the Notes was $ 13.4 million, which consisted of $ 3.6 million of contractual interest expense, $ 8.6 million of debt discount amortization, and $ 1.2 million of amortization of debt issuance costs.

For the year ended June 30, 2022, the total interest expense on the Notes was $ 4.7 million, which consisted of $ 3.5 million of contractual interest expense and $ 1.2 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 $ 0.2 million as of June 30, 2021 and June 30, 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.

Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2022

instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital.

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

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

During fiscal 2022, we repurchased and cancelled approximately $ 45.2 million of principal value of the Notes.

We recognized a loss on debt extinguishment of $ 0.1 million during the year ended June 30, 2022, representing the write-off of unamortized debt issuance costs related to the portion of the Notes repurchased.

Total interest expense for the year ended June 30, 2022 related to the Notes was $ 4.7 million, which consisted of $ 3.5 million of contractual interest expense and $ 1.2 million of amortization of debt issuance costs.

Total interest expense for the year ended June 30, 2023 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.

Other Borrowings

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Principal amount

Unamortized discount

Unamortized debt issuance costs

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Fiscal year principal payments of long-term debt as of June 30, 2023 are as follows (in thousands):

STOCKHOLDERS’ EQUITY

Stock-based Compensation

As of June 30, 2022, we maintained the OSI Plan as a stock-based employee compensation plan.

2028 and thereafter

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FOR THE THREE YEARS ENDED JUNE 30, 2023

STOCKHOLDERS’ EQUITY

Stock-based Compensation

As of June 30, 2023, we maintained 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):

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Stock-based compensation expense

As of June 30, 2022, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.6 million for stock options and $ 13.8 million for restricted stock units (“RSUs”).

As of June 30, 2023, total unrecognized compensation cost related to stock-based compensation grants under the OSI Plan were estimated at $ 0.7 million for stock options and $ 13.9 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted-average period of 2.0 years with respect to the stock options and 2.0 years for grants of RSUs.

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The total intrinsic value of options exercised during fiscal 2023 was $ 1.5 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2022

Restricted Stock Units —A summary of RSU activity for the periods indicated was as follows:

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Nonvested at June 30, 2023

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The per-share weighted average grant-date fair value of RSUs granted under the OSI Plan was $ 80.40 , $ 90.31 , and $ 87.90 for fiscal 2021, 2022 and 2023, respectively.

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Stock Repurchase Program

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

In September 2022, our Board of Directors increased the stock repurchase authorization to a total of two million shares of Common Stock.

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

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Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them in our consolidated financial statements as a reduction in the number of shares of Common Stock issued and outstanding.

During fiscal 2021, 2022 and 2023, we repurchased 452,005 shares, 1,294,594 shares and 400,230 shares, respectively, of common stock under our then current programs.

As of June 30, 2023, there were 1,721,870 shares remaining available for repurchase under the authorized repurchase program.

We have not paid any dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any dividends in the foreseeable future.

Our Board of Directors will determine the payment of future dividends, if any.

Certain of our current bank credit facilities restrict the payment of dividends and future borrowings may contain similar restrictions.

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During fiscal 2020, 2021 and 2022, we repurchased 562,707 shares, 452,005 shares and 1,294,594 shares, respectively, of common stock under our then current programs.

As of June 30, 2022, there were 1,253,401 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.

Our Board of Directors will determine the payment of future cash dividends, if any.

Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions.

The following is a geographical breakdown of income before the provision for income taxes (in thousands):

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As of June 30, 2022 and 2023, our liability for uncertain tax positions was $ 8.2 million and $ 12.0 million, respectively.

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 8.1 million.

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 12.0 million as of June 30, 2023.

We recognize potential interest and penalties related to income tax matters in income tax expense.

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Since the ultimate resolution of uncertain tax positions depends on many factors and assumptions, we are not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

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FOR THE THREE YEARS ENDED JUNE 30, 2022

A summary of activity of unrecognized tax benefits for fiscal 2022 and 2023 is as follows (in thousands).

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Balance at June 30, 2023

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Deferred income tax assets (liabilities) consisted of the following (in thousands):

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State transition tax

Convertible debt

Other liabilities

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Net deferred income tax liability

The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands):

Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets

Current taxes payable, included in other accrued expenses and current liabilities

Net tax receivable (payable)

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The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands):

Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets

Current taxes payable, included in other accrued expenses and current liabilities

Net tax receivable

As of June 30, 2023, we had federal, state and foreign net operating losses carryforwards of approximately $ 1.1 million, $ 22.6 million and $ 7.9 million, respectively.

Our net operating loss carryforwards will begin to expire in the tax year ending June 30, 2028.

As of June 30, 2023, we had federal and state tax credit carryforwards of approximately $ 0.5 million and $ 8.1 million, respectively.

Our credit carryforwards will begin to expire in the tax year ending June 30, 2026.

We have established valuation allowances that relate to the net operating loss of certain subsidiaries, capital losses, and tax credits.

We have established valuation allowances that relate to the net operating losses of certain subsidiaries, capital losses, and tax credits.

During the year ended June 30, 2023, we recorded a net aggregated decrease of $ 3.9 million to these valuation allowances.

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We recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the current year.

An income tax expense of approximately $ 1.2 million and $ 2.0 million was recognized in fiscal 2021 and 2022, respectively.

An income tax benefit of approximately $ 2.0 million and $ 0.6 million was recognized in fiscal 2022 and 2023, respectively.

The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following:

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Foreign Derived Intangible Income Benefit

Non-taxable earnings from acquisitions

Patent box benefit

Withholding tax on foreign earnings

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Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

COMMITMENTS AND CONTINGENCIES

Acquisition-Related Contingent Obligations —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

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milestones through the acquired operations.

COMMITMENTS AND CONTINGENCIES

For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 55.3 million as of June 30, 2023.

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 $ 1.0 million and $ 1.9 million, respectively, during the fiscal years ended June 30, 2021 and 2022, respectively.

We made contingent payments relating to such acquisitions of $ 1.0 million, $ 1.9 million and $ 3.4 million, respectively, during the fiscal years ended June 30, 2021, 2022 and 2023, respectively.

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

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We have not recorded any liability for costs related to contingent indemnification obligations as of June 30, 2023.

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

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Chopra’s death or disability.

The bonus is accrued in the financial statements over the remaining term of the employment agreement and is included in other long-term liabilities.

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

The bonus is recorded in the financial statements over the remaining term of the employment agreement and is included in accrued payroll and related expenses at June 30, 2023 and in other long-term liabilities at June 30, 2022.

Legal Proceedings — In February 2023, we received a subpoena from the U.S.

Department of Justice (“DoJ”) relating to a former employee of an OSI Systems subsidiary.

The DoJ is currently prosecuting the former employee for embezzlement and other conduct occurring before he was hired by our subsidiary and while he was employed by another company in the United States and Mexico.

The subpoena requests documents and records relating to, among other things, the former employee and the Company’s business dealings in Mexico since 2020.

We are working in coordination with the DoJ to identify and produce the relevant documents and records.

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

In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

We have not accrued for loss contingencies relating to any non-ordinary course matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable.

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

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Receivables from the joint venture were $ 0.6 million and $ 1.9 million as of June 30, 2022 and 2023, respectively.

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FOR THE THREE YEARS ENDED JUNE 30, 2023

EMPLOYEE BENEFIT PLANS

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Discretionary company contributions and the related earnings are subject to a vesting schedule dependent upon years of service to us and, also, vest completely upon the participant’s disability or death while employed by us or immediately prior to a change of control.

We made contributions of $ 0.5 million for each of fiscal year 2020, 2021 and 2022.

We made contributions of $ 0.5 million, $ 0.5 million and $ 0.6 million for fiscal year 2021, 2022 and 2023, respectively.

As of June 30, 2023, we held assets of $ 36.8 million and liabilities of $ 33.6 million related to this plan.

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Interest costs

Actuarial (gain) loss

Actuarial gain

Benefits paid

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Amount recognized in consolidated balance sheets consists of:

Accrued pension liability

Net benefit asset (included in other current assets)

Current portion of net pension liability (included in other current liabilities)

Net long term pension liability (included in other long-term liabilities)

Accumulated other comprehensive income

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The weighted average is based on the actual proportion of each major asset class held, rather than a benchmark portfolio of assets.

The expected returns for each major asset class have been derived from a combination of both historical market returns and

The expected returns for each major asset class have been derived from a combination of both historical market returns and current market data as well as the views of a range of investment managers.

There is no assumed rate of compensation increase as most of the plan participants are retirees or no longer employed by OSI.

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current market data as well as the views of a range of investment managers.

There is no assumed rate of compensation increase as most of the plan participants are retirees or no longer employed by OSI.

Plan Assets and Investment Policy

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Company Contribution

As of June 30, 2022, our weighted average contribution rate is under 1 % of pensionable salaries.

There were no company contributions for the fiscal year ended June 30, 2023.

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Depreciation and amortization

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Optoelectronics

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Depreciation and amortization

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The following tables present the revenues and identifiable assets by geographical area (in thousands):

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Other Europe, Middle East and Africa

OSI SYSTEMS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2023

tangible assets

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UNAUDITED QUARTERLY RESULTS

The following tables present unaudited quarterly financial information for the four quarters ended June 30, 2021 and 2022 (in thousands, except per share data):

The following tables present unaudited quarterly financial information for the four quarters in the fiscal years ended June 30, 2022 and 2023 (in thousands, except per share data):

Quarter Ended

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Research and development

Impairment, restructuring and other charges (benefit), net

Impairment, restructuring and other charges, net

Total operating expenses

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Certificate of Incorporation of OSI Systems, Inc.

Bylaws of OSI Systems, Inc.

Amended and Restated Bylaws of OSI Systems, Inc.

Form of Common Stock Certificate (1)

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Second Amendment to Employment Agreement effective April 29, 2019 between Victor Sze and OSI Systems, Inc.

Offer Letter dated July 3, 2017 between Malcolm Maginnis and OSI Systems, Inc.

Employment Agreement effective as of January 1, 2012 between Manoocher Mansouri and OSI Systems, Inc.

Amended and Restated Retirement Benefit Award Agreement effective as of December 31, 2017 by and between Deepak Chopra and OSI Systems, Inc.

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Consent of Independent Registered Public Accounting Firm

Power of Attorney (included on the signature page of this Form 10-K)

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(v) the consolidated statements of cash flows

(vi) the notes to the consolidated financial statements, tagged in summary and detail

EXHIBIT DESCRIPTION

(vi) the notes to the consolidated financial statements, tagged in summary and detail

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

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(13) Previously filed with our Current Report on Form 8-K filed on February 22, 2017.

(14) Previously filed with our Quarterly Report on Form 10-Q filed on October 26, 2018.

(14) Previously filed with our Proxy Statement on Schedule 14A filed on October 21, 2016.

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(17) Previously filed with our Quarterly Report on Form 10-Q filed on October 29, 2021.

(18) Previously filed with our Annual Report on Form 10-K filed on August 19, 2022.

(19) Previously filed with our Quarterly Report on Form 10-Q filed on January 27, 2023.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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August 29, 2023

/s/ STEVEN C.

August 29, 2023

August 19, 2022

/s/ MEYER LUSKIN

4 unchanged sentences

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-K

Item 9A. Controls and Procedures