SEC Filing | OSI Systems, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-23125

OSI SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0238801
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12525 Chadron Avenue

Hawthorne, California 90250

(Address of principal executive offices) (Zip Code)

(310) 978-0516

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	OSIS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of January 25, 2021, there were 17,972,111 shares of the registrant’s common stock outstanding.

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OSI SYSTEMS, INC.

INDEX


		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2019 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2019 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended December 31, 2019 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and 2020	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4 —	Controls and Procedures	30

PART II — OTHER INFORMATION		32
Item 1 —	Legal Proceedings	32
Item 1A —	Risk Factors	32
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3 —	Defaults Upon Senior Securities	32
Item 4 —	Mine Safety Disclosures	32
Item 5 —	Other Information	32
Item 6 —	Exhibits	33
Signatures		34

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


	June 30,		December 31,
	2020		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	76,102	$	72,575
Accounts receivable, net		269,840		263,071
Inventories		241,226		266,190
Prepaid expenses and other current assets		30,541		32,588
Total current assets		617,709		634,424
Property and equipment, net		127,936		127,875
Goodwill		310,627		318,287
Intangible assets, net		128,279		132,076
Other assets		83,990		88,141
Total assets	$	1,268,541	$	1,300,803
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	59,000	$	18,000
Current portion of long-term debt		926		947
Accounts payable		84,940		90,029
Accrued payroll and related expenses		46,127		37,314
Advances from customers		28,155		73,899
Other accrued expenses and current liabilities		110,953		113,204
Total current liabilities		330,101		333,393
Long-term debt		267,072		271,667
Deferred income taxes		5,846		3,207
Other long-term liabilities		93,370		104,900
Total liabilities		696,389		713,167
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value— 10,000,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 18,011,982 shares at June 30, 2020 and 17,933,256 shares at December 31, 2020		122,553		100,816
Retained earnings		474,793		504,175
Accumulated other comprehensive loss		(25,194)		(17,355)
Total stockholders’ equity		572,152		587,636
Total liabilities and stockholders’ equity	$	1,268,541	$	1,300,803

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)


	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2020		2019		2020
Net revenues:
Products	$	223,772	$	208,367	$	433,533	$	391,114
Services		81,570		67,642		162,661		139,803
Total net revenues		305,342		276,009		596,194		530,917
Cost of goods sold:
Products		148,709		139,893		295,051		264,734
Services		45,860		34,035		91,159		68,351
Total cost of goods sold		194,569		173,928		386,210		333,085
Gross profit		110,773		102,081		209,984		197,832
Operating expenses:
Selling, general and administrative		63,902		56,101		126,079		114,718
Research and development		14,881		13,784		29,127		25,866
Impairment, restructuring and other charges (benefit), net		(929)		(162)		(3,028)		8,197
Total operating expenses		77,854		69,723		152,178		148,781
Income from operations		32,919		32,358		57,806		49,051
Interest and other expense, net		(4,844)		(4,233)		(9,580)		(8,422)
Income before income taxes		28,075		28,125		48,226		40,629
Provision for income taxes		(7,089)		(8,087)		(6,497)		(11,247)
Net income	$	20,986	$	20,038	$	41,729	$	29,382
Earnings per share:
Basic	$	1.15	$	1.12	$	2.28	$	1.63
Diluted	$	1.12	$	1.10	$	2.22	$	1.61
Shares used in per share calculation:
Basic		18,312		17,924		18,285		17,988
Diluted		18,682		18,196		18,783		18,266

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)


	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2020		2019		2020
Net income	$	20,986	$	20,038	$	41,729	$	29,382
Other comprehensive income (loss):
Foreign currency translation adjustment		2,640		4,267		(412)		7,722
Other		9		59		19		117
Other comprehensive income (loss)		2,649		4,326		(393)		7,839
Comprehensive income	$	23,635	$	24,364	$	41,336	$	37,221

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)


	Three Months Ended December 31, 2019
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—September 30, 2019	18,357,464	$	141,049	$	420,284	$	(19,769)	$	541,564
Exercise of stock options	32,656		1,200		—		—		1,200
Vesting of RSUs	26,219		—		—		—		—
Repurchase of common stock	(140,823)		(13,732)		—		—		(13,732)
Stock-based compensation expense	—		5,844		—		—		5,844
Taxes paid related to net share settlement of equity awards	(7,942)		(795)		—		—		(795)
Net income	—		—		20,986		—		20,986
Other comprehensive income	—		—		—		2,649		2,649
Balance—December 31, 2019	18,267,574	$	133,566	$	441,270	$	(17,120)	$	557,716


	Three Months Ended December 31, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—September 30, 2020	17,912,541	$	95,084	$	484,137	$	(21,681)	$	557,540
Exercise of stock options	8,337		483		—		—		483
Vesting of RSUs	17,719		—		—		—		—
Stock-based compensation expense	—		5,712		—		—		5,712
Taxes paid related to net share settlement of equity awards	(5,341)		(463)		—		—		(463)
Net income	—		—		20,038		—		20,038
Other comprehensive income	—		—		—		4,326		4,326
Balance—December 31, 2020	17,933,256	$	100,816	$	504,175	$	(17,355)	$	587,636

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	Six Months Ended December 31, 2019
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2019	18,167,020	$	168,913	$	399,541	$	(16,727)	$	551,727
Exercise of stock options	199,962		4,032		—		—		4,032
Vesting of RSUs	387,085		—		—		—		—
Shares issued under employee stock purchase program	34,837		2,065		—		—		2,065
Stock-based compensation expense	—		12,260		—		—		12,260
Repurchase of common stock	(266,874)		(26,994)		—		—		(26,994)
Taxes paid related to net share settlement of equity awards	(254,456)		(26,710)		—		—		(26,710)
Net income	—		—		41,729		—		41,729
Other comprehensive loss	—		—		—		(393)		(393)
Balance—December 31, 2019	18,267,574	$	133,566	$	441,270	$	(17,120)	$	557,716


	Six Months Ended December 31, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2020	18,011,982	$	122,553	$	474,793	$	(25,194)	$	572,152
Exercise of stock options	77,532		563		—		—		563
Vesting of RSUs	304,420		—		—		—		—
Shares issued under employee stock purchase program	32,641		2,022		—		—		2,022
Stock-based compensation expense	—		11,821		—		—		11,821
Repurchase of common stock	(320,136)		(24,816)						(24,816)
Taxes paid related to net share settlement of equity awards	(173,183)		(11,327)		—		—		(11,327)
Net income	—		—		29,382		—		29,382
Other comprehensive income	—		—		—		7,839		7,839
Balance—December 31, 2020	17,933,256	$	100,816	$	504,175	$	(17,355)	$	587,636

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Six Months Ended December 31,
	2019		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	41,729	$	29,382
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions:
Depreciation and amortization		26,961		21,162
Stock-based compensation expense		12,260		11,821
Provision for losses on accounts receivable		677		5,240
Deferred income taxes		(53)		44
Amortization of debt discount and issuance costs		4,646		4,830
Impairment charges		—		552
Other		200		55
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		(19,455)		3,189
Inventories		19,930		(25,151)
Prepaid expenses and other assets		(17,646)		(9,622)
Accounts payable		12,739		4,408
Accrued payroll and related expenses		(5,381)		(4,328)
Advances from customers		(10,580)		45,250
Other		(6,400)		2,647
Net cash provided by operating activities		59,627		89,479
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(11,593)		(8,508)
Purchases of certificates of deposit		—		(2,628)
Proceeds from maturities of certificates of deposit		—		700
Acquisition of business, net of cash acquired		(171)		(3,000)
Payments for intangible and other assets		(3,853)		(7,047)
Net cash used in investing activities		(15,617)		(20,483)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on bank lines of credit		3,000		(41,000)
Proceeds from long-term debt		441		315
Payments on long-term debt		(480)		(539)
Proceeds from exercise of stock options and employee stock purchase plan		6,097		2,585
Payments of contingent consideration		(1,220)		(628)
Repurchases of common stock		(26,994)		(24,816)
Taxes paid related to net share settlement of equity awards		(26,710)		(11,327)
Net cash used in financing activities		(45,866)		(75,410)
Effect of exchange rate changes on cash		596		2,887
Net change in cash and cash equivalents		(1,260)		(3,527)
Cash and cash equivalents—beginning of period		96,316		76,102
Cash and cash equivalents—end of period	$	95,056	$	72,575
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	4,242	$	3,012
Income taxes	$	9,668	$	5,125

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. 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, 2020 filed with the SEC. The results of operations for the three and six months ended December 31, 2020 are not necessarily indicative of the operating results to be expected for the full 2021 fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and costs of sales during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, profit and loss recognition, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Due to the inherent uncertainty involved in making estimates, our actual amounts reported in future periods could differ materially from these estimates.

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 1.25% convertible senior notes due 2022 (the “Notes”) discussed in Note 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion. There was no dilutive effect of the Notes for the three and six months ended December 31, 2019 and 2020.

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2020		2019		2020
Net income available to common stockholders	$	20,986	$	20,038	$	41,729	$	29,382

Weighted average shares outstanding—basic		18,312		17,924		18,285		17,988
Dilutive effect of equity awards		370		272		498		278
Weighted average shares outstanding—diluted		18,682		18,196		18,783		18,266

Basic earnings per share	$	1.15	$	1.12	$	2.28	$	1.63
Diluted earnings per share	$	1.12	$	1.10	$	2.22	$	1.61
Shares excluded from diluted earnings per share due to their anti-dilutive effect		94		45		85		89

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 $72.6 million at December 31, 2020. Of this amount, approximately 72% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in the United Kingdom, Puerto Rico, Malaysia, Canada, Singapore and India and to a lesser extent in Australia and Germany among other countries. We have cash holdings in financial institutions that exceed insured limits for such institutions; however, we mitigate this risk 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 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, as the interest rates of these instruments are variable or comparable to current rates for financing available to us. The fair values of our foreign currency forward contracts were not significant as of December 31, 2020.

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. The Level 1 category includes assets and liabilities measured at quoted prices in active markets for identical assets and liabilities. The Level 2 category includes assets and liabilities measured from observable inputs other than quoted market prices. The Level 3 category includes assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement. Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the Level 3 category for valuation purposes.

The fair values of our financial assets and liabilities are categorized as follows (in thousands):


	June 30, 2020								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets :
Insurance company contracts	$	—	$	37,155	$	—	$	37,155	$	—	$	43,445	$	—	$	43,445
Liabilities:
Contingent consideration	$	—	$	—	$	13,867	$	13,867	$	—	$	—	$	19,609	$	19,609

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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 and used as a net investment hedge for a foreign subsidiary to protect against potential changes resulting from short-term foreign currency fluctuations. These contracts have original maturities of up to three months. We do not use hedging instruments for speculative purposes.

The net investment hedge has been designated as a hedge instrument and accounted for under ASC 815 “Derivatives and Hedging” (ASC 815). Hedge effectiveness is assessed using the spot method, consistent with guidance in ASC 815 whereby the change in fair value of the forward contract is recorded in the same manner as the related currency translation adjustments, within other comprehensive income, as the hedging instrument is expected to be fully effective unless the amount hedged exceeds the net investment in the foreign operation, or the foreign operation is liquidated. We settled the net investment hedge during the three months ended December 31, 2020, and the amount recorded in other comprehensive income was not significant. There were no net investment hedges outstanding as of December 31, 2020.

The net gains or losses from the foreign currency forward contracts for balance sheet exposures, which are not designated as hedge instruments, are reported in the consolidated income statement. We initiated these forward contracts during the three months ended September 30, 2020 and the amounts reported in the consolidated income statement for the three and six months ended December 31, 2020 were not significant. The fair value of our forward foreign exchange contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of December 31, 2020, we held foreign currency forward contracts with notional amounts totalling $24.5 million. Unrealized gains and losses from the forward currency forward contracts as of December 31, 2020 were not significant. There were no derivative instruments as of June 30, 2020.

Recently Adopted Accounting Pronouncements

Retirement Benefit Plans

In August 2018, the FASB issued authoritative guidance under Accounting Standards Update (“ASU”) 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our disclosures in the consolidated financial statements.

Intangibles

In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. We are required to adopt this new guidance in the first quarter of fiscal 2023. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements.

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. Modifications to debt agreements for a change in the reference interest rate will be accounted for by prospectively adjusting the effective interest rate. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates; however the adoption of this new guidance for modifications to contracts, if any, is not expected to have a significant impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles of ASC 740 and is intended to improve consistency and simplify GAAP by clarifying and amending existing guidance for income taxes and related topics. We are required to adopt this new guidance in the first quarter of fiscal 2022. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements.

2. Business Combinations

Under ASC 805, Business Combinations, the acquisition method of accounting requires us to record assets acquired less liabilities assumed in an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase consideration over the estimated fair value of the assets acquired less liabilities assumed should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. We may record adjustments to the assets acquired and liabilities assumed, with corresponding adjustments to goodwill, during the one-year post-acquisition measurement period as additional information becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are reflected in reported earnings.

Fiscal Year 2021 Business Acquisition

In July 2020, we (through our Healthcare division) acquired a privately-held software development company for $3.0 million, plus up to $12.0 million in potential contingent consideration. The goodwill recognized for this business is deductible for income tax purposes. This acquisition was financed with available cash on hand. This business acquisition was not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations and certain other disclosures related to this business have not been presented.

3. Balance Sheet Details

The following tables provide details of selected balance sheet accounts (in thousands):


	June 30,		December 31,
Accounts receivable, net	2020		2020
Accounts receivable	$	287,488	$	285,783
Less allowance for doubtful accounts		(17,648)		(22,712)
Total	$	269,840	$	263,071


	June 30,		December 31,
Inventories	2020		2020
Raw materials	$	132,797	$	135,942
Work-in-process		50,023		60,383
Finished goods		58,406		69,865
Total	$	241,226	$	266,190

Table of Contents



	June 30,		December 31,
Property and equipment, net	2020		2020
Land	$	16,516	$	16,553
Buildings, civil works and improvements		57,709		58,247
Leasehold improvements		9,052		9,441
Equipment, furniture and fixtures		149,310		155,577
Computer software		18,217		22,013
Computer software implementation in process		11,817		10,710
Construction in process		3,598		4,139
Total		266,219		276,680
Less accumulated depreciation and amortization		(138,283)		(148,805)
Property and equipment, net	$	127,936	$	127,875

Depreciation and amortization expense for property and equipment was $5.4 million and $5.6 million for the three months ended December 31, 2019 and 2020, respectively, and $10.5 million and $10.8 million for the six months ended December 31, 2019 and 2020, respectively.

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the six-month period ended December 31, 2020 were as follows (in thousands):


					Optoelectronics
					and
	Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated
Balance as of June 30, 2020	$	203,627	$	39,983	$	67,017	$	310,627
Goodwill acquired or adjusted during the period		1,412		3,244		—		4,656
Foreign currency translation adjustment		483		266		2,255		3,004
Balance as of December 31, 2020	$	205,522	$	43,493	$	69,272	$	318,287

Intangible assets consisted of the following (in thousands):


		June 30, 2020						December 31, 2020
	Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8 years	$	41,332	$	(16,295)	$	25,037	$	46,136	$	(17,268)	$	28,868
Patents	19 years		9,962		(2,584)		7,378		9,986		(2,744)		7,242
Developed technology	10 years		55,719		(19,556)		36,163		60,894		(22,733)