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Table of Contents

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

OR

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

Graphic

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.

Table of Contents

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

2

Table of Contents

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.

3

Table of Contents

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.

4

Table of Contents

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

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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)

 

38,161

Customer relationships/backlog

 

7 years

 

64,128