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What changed in OSI SYSTEMS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OSI SYSTEMS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+327 added−364 removedSource: 10-K (2023-08-29) vs 10-K (2022-08-19)

Top changes in OSI SYSTEMS INC's 2023 10-K

327 paragraphs added · 364 removed · 280 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

113 edited+11 added−21 removed107 unchanged
Biggest changeFrom time to time we form joint ventures to carry out our operations in certain geographies, including, for example, Albania. 4 Table of Contents As a result of terrorist attacks worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, sporting venues, freight forwarding operations, government and military installations and nuclear facilities.
Biggest changeSecurity and inspection products are used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, correctional facilities, government and military installations, sports and concert venues and other locations where the interdiction of criminal activities is paramount. The U.S.
This sales staff is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers. We market and sell our healthcare products globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors.
This sales organization is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers. We market and sell our healthcare products globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors.
The purpose of these studies is to identify, as of the date of such report, potential areas of environmental concern related to past and present activities or from nearby operations. The scope and extent of each investigation is dependent upon the size and complexity of the property and/or operation and on recommendations by independent environmental consultants.
The purpose of these studies is to identify, as of the date of such report, potential areas of environmental concern related to past and present activities or from nearby operations. The scope and extent of each investigation is dependent upon the size, complexity and operation of the property and on recommendations by independent environmental consultants.
Manufacturers of FDA-regulated products are subject to pervasive and continuing post-approval governmental regulation, including, but not limited to, the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution; Quality System (also known as Good Manufacturing Practices) Regulations, which requires manufacturers, including third party manufacturers, to follow stringent design, risk management, validation, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process; product and promotional labeling regulations; advertising and promotion requirements; restrictions on sale, distribution or use of a device; PMA annual reporting requirements; the FDA’s general prohibition against promoting products for unapproved or “off-label” uses; the Medical Device Reporting (MDR) regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur; medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death; an order of repair, replacement or refund; device tracking requirements; and post-approval study and post-market surveillance requirements.
Manufacturers of FDA-regulated products are subject to pervasive and continuing post-approval governmental regulation, including, but not limited to, the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution; Quality System (also known as Good Manufacturing Practices) Regulations, which requires manufacturers, including third-party manufacturers, to follow stringent design, risk management, validation, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process; product and promotional labeling regulations; advertising and promotion requirements; restrictions on sale, distribution or use of a device; PMA annual reporting requirements; the FDA’s general prohibition against promoting products for unapproved or “off-label” uses; the Medical Device Reporting (MDR) regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur; medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and removals (“recalls”) if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death; an order of repair, replacement or refund; device tracking requirements; and post-approval study and post-market surveillance requirements.
Competition in the extensive electronic manufacturing services market ranges from multinational corporations with sales in excess of several billion dollars, to large regional competitors and to small local assembly companies. In our experience, the OEM customers to whom we provide such services prefer to engage companies that offer both local and lower-cost off-shore facilities.
Competition in the extensive electronic manufacturing services market ranges from multinational corporations with sales in excess of several billion dollars, to large regional competitors and to small local assembly companies. In our experience, the OEM customers to whom we provide such services often prefer to engage companies that offer both local and lower-cost off-shore facilities.
We have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for the Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.
We have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.
In addition, we see a trend among OEMs to increasingly outsource the design and manufacture of optoelectronic devices as well as value-added subsystems to fully-integrated, independent manufacturers, like us, that may have greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.
In addition, we see a trend among OEMs to outsource the design and manufacture of optoelectronic devices as well as value-added subsystems to fully-integrated, independent manufacturers, like us, that may have greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.
Most of our high-volume, labor-intensive manufacturing activities are performed at our facilities in India, Mexico, Indonesia and Malaysia. Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.
Most of our high-volume, labor-intensive manufacturing activities are performed at our facilities in India, Indonesia and Malaysia. Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.
The trend toward increased screening of goods entering and departing from ports and borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of inspecting shipping containers for contraband and assisting customs officials in the verification of shipping manifests.
The trend toward increased screening of goods entering and departing from ports and crossing borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of inspecting shipping containers for contraband and assisting customs officials in the verification of shipping manifests.
Our manufacturing facilities conduct regular internal audits to ensure proper environmental permits and controls are in place to meet changes in operations. Third-party investigations address matters related to current and former occupants and operations, historical land use, and regulatory oversight and status of associated properties and/or operations (including surrounding properties).
Our manufacturing facilities conduct regular internal audits to ensure proper environmental permits and controls are in place to meet changes in operations. Third-party investigations address matters related to current and former occupants and operations, historical land use, and regulatory oversight and status of associated properties and operations (including surrounding properties).
Also available on our website free of charge are our Corporate Governance Guidelines, the Charters of our Nominating and Governance, Audit, Compensation and Benefits, Technology, and Risk Management Committees of our Board of Directors and our Code of Ethics and Conduct (which applies to all Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer).
Also available on our website free of charge are our Corporate Governance Guidelines, the Charters of our Nominating and Governance, Audit, Compensation and Benefits, Technology, and Risk Management Committees of our Board of Directors and our Code of Ethics and Conduct (which applies to all members of our Board of Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer).
Our electronics manufacturing services are provided primarily under the “OSI Electronics,” “APlus Products,” “Altaflex,” and “PFC Flexible Circuits” trade names. 6 Table of Contents Markets, Customers and Applications Security and Inspection Products. Many security and inspection products were developed in response to civilian airline hijackings.
Our electronics manufacturing services are provided primarily under the “OSI Electronics,” “APlus Products,” “Altaflex,” and “PFC Flexible Circuits” trade names. 6 Table of Contents Markets, Customers and Applications Security and Inspection Products. Many security and inspection products were developed originally in response to civilian airline hijackings.
These products are manufactured in standard and customized configurations for specific applications and are offered either as components or as subsystems. Our optoelectronic products and services are provided primarily under the “OSI Optoelectronics,” “OSI LaserDiode,” “OSI Laserscan,” “Semicoa,” and “Advanced Photonix” trade names.
These products are manufactured in standard and customized configurations for specific applications and are offered either as components or as subsystems. Our optoelectronic products and services are provided primarily under the “OSI Optoelectronics,” “OSI LaserDiode,” “OSI Laserscan,” and “Advanced Photonix” trade names.
Human Capital The strength and talent of our workforce are critical to the success of our businesses, and we continually strive to attract, develop and retain personnel commensurate with the needs of our businesses. Our human capital management priorities are designed to support the execution of our business strategy and improve organizational effectiveness.
Human Capital The strength and talent of our workforce are critical to the success of our businesses, and we strive to attract, develop and retain personnel commensurate with the needs of our businesses. Our human capital management priorities are designed to support the execution of our business strategy and improve organizational effectiveness.
We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and internationally.
We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug and human trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and internationally.
Our Security products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation detection; explosive and narcotics trace detection; and optical inspection systems.
Our Security products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation monitoring; explosive and narcotics trace detection; and optical inspection systems.
In instances where we are not able to estimate the value of a purchase order or contract, they are not included in backlog. We ship most of our baggage and parcel inspection, people screening, patient monitoring and cardiology and remote monitoring systems and optoelectronic devices and value-added subsystems within one to several months after receiving an order.
In instances where we are not able to estimate the value of a purchase order or contract, they are not included in backlog. We ship most of our baggage and parcel inspection, people screening, trace detection, patient monitoring and cardiology and remote monitoring systems and optoelectronic devices and value-added subsystems within one to several months after receiving an order.
Additionally, our flexible circuit businesses offer design expertise, manufacturing capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets. Growth Strategy We believe that one of our primary competitive strengths is our expertise in the cost-effective design and manufacture of specialized electronic systems and components for critical applications.
Additionally, our flexible circuit businesses offer design expertise, fabrication capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets. Growth Strategy We believe that one of our primary competitive strengths is our expertise in the cost effective design and manufacture of specialized electronic systems and components for critical applications.
We also believe that we offer significant added value to our customers by providing a full range of vertically-integrated services, including component design and customization, subsystem concept design and application engineering, product development and prototyping, efficient pre-production and short-run manufacturing and competitive mass production capabilities.
We also believe that we offer significant added value to our customers by providing a full range of vertically-integrated services, including component design and customization, subsystem concept design and application engineering, product development and prototyping, efficient preproduction and short run manufacturing and competitive mass production capabilities.
We currently manufacture our patient monitoring and cardiology and remote monitoring systems in Washington state. We outsource manufacturing of certain of our supplies and accessories. We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, Mexico, India, Indonesia, Malaysia, the United Kingdom and Singapore.
We currently manufacture our patient monitoring and cardiology and remote monitoring systems in Washington state. We outsource manufacturing of certain of our supplies and accessories. We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, India, Indonesia, Malaysia, and the United Kingdom.
In addition, these competitors may have the ability to respond quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do.
In addition, some competitors may have the ability to respond quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do.
Competition The markets in which we operate are highly competitive and characterized by evolving customer needs and rapid technological change. We compete with a number of other manufacturers, some of which have significantly greater financial, technical and marketing resources than we have.
Competition The markets in which we operate are highly competitive and characterized by evolving customer needs and rapid technological change. We compete with other manufacturers, some of which have significantly greater financial, technical and marketing resources than we have.
Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA’s Quality System Regulation (QSR) facility registration and product listing, reporting of adverse events and malfunctions and appropriate, truthful and non-misleading labeling, advertising and promotional materials.
Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA’s Quality System Regulation (QSR) facility registration and product listing, reporting of adverse events and malfunctions and truthful and non-misleading promotional materials.
A variety of technologies are currently used globally in security and inspection applications, including transmission and backscatter X-ray, 3-D and computed tomography, radiation detection, metal detection, radar, millimeter wave imaging, chemical explosive trace detection, and optical inspection.
A variety of technologies are currently used globally in security and inspection applications, including transmission and backscatter X-ray, and 3-D computed tomography, radiation detection, metal detection, millimeter wave imaging, explosive trace detection, and optical inspection.
This variety of technologies also permits us to offer unique hybrid systems to our customers that utilize two or more of these technologies, thereby optimizing flexibility, performance and cost to meet the customer’s unique application requirements.
This variety of technologies also permits us to offer unique hybrid systems to our customers that utilize two or more of these technologies, thereby optimizing flexibility, performance and cost to meet each customer’s unique application requirements.
Our sales staff is supported by an applications engineering group whose members are available to provide technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications. We consider our maintenance service operations to be an important element of our business.
Our sales staff is supported by an applications engineering group whose members are available to provide technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications. 7 Table of Contents We consider our maintenance service operations to be an important element of our business.
We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third-party providers. 8 Table of Contents The principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials.
We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third-party providers. The principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials.
To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and plastic molding of components. The principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, radioactive isotopes, detectors, data acquisition and computer systems, conveyance systems and miscellaneous mechanical and electrical components.
To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and plastic molding of components. The principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, detectors, data acquisition and computer systems, conveyance systems, vehicles, and miscellaneous mechanical and electrical components.
Unless an exemption applies, federal law and FDA regulations require that all new or significantly modified medical devices introduced into the market be preceded either by a pre-market notification clearance order under section 510(k) of the Federal Food, Drug and Cosmetic Act (FDCA), or an approved pre-market approval (PMA) application.
Unless an exemption applies, federal law and FDA regulations require that all new or significantly modified medical devices introduced into the market be preceded either by a premarket notification clearance under section 510(k) of the Federal Food, Drug and Cosmetic Act (FDCA), or an approved premarket approval (PMA) application.
This has created uncertainty in the market, which could result in reduced demand for our products, additional pricing pressure, and increased demand for new and more flexible payment structures. 11 Table of Contents Other Healthcare Laws. In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.
This has created uncertainty in the market, which could result in reduced demand for our products, additional pricing pressure, and increased demand for new and more flexible payment structures. Other Healthcare Laws. In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.
In addition, we provide a variety of service and support options for our healthcare customers, including hospital on-site repair and maintenance service and telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at our division 7 Table of Contents headquarters.
In addition, we provide a variety of service and support options for our healthcare customers, including hospital on-site repair and maintenance service and telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at our division headquarters.
Our medical device product candidates must undergo an extensive government regulatory clearance or approval process prior to sale in the United States and other countries, including submission demonstrating clinical safety and efficacy of intended use, as well as the continuing need for compliance with applicable laws and regulations.This may require significant interaction with regulatory agencies and the expenditure of substantial resources. 9 Table of Contents United States FDA.
Our medical device product candidates must undergo an extensive government regulatory clearance or approval process prior to sale in the United States and other countries, including submission demonstrating clinical safety and efficacy of intended use, as well as the continuing need for compliance with applicable laws and regulations.This may require significant interaction with regulatory agencies and the expenditure of substantial resources.
A copy of this annual report on Form 10-K is available without charge upon written request addressed to: c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310) 978-0516. ​
A copy of this annual report on Form 10-K is available without charge upon written request addressed to: c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310) 978-0516. ​ 16 Table of Contents ​
The COVID-19 pandemic has strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected change. Our customers expect clinical value, economic value, and clinical decision support.
The COVID-19 pandemic strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected changes. Our customers expect clinical value, economic value, and clinical decision support.
Positioning our current healthcare products to demonstrate the competitive value in total cost of ownership is increasingly important in this environment. At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an 2 Table of Contents emerging demand for patient data acquisition and distribution.
Positioning our current healthcare products to demonstrate the competitive value in total cost of ownership is increasingly important in this environment. At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an emerging demand for patient data acquisition and distribution.
Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, box-build manufacturing, and flex circuitry on a complete turnkey basis.
Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, LCD and TFT displays, box-build manufacturing, and flex circuitry on a complete turnkey basis.
These laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants and other service arrangements.
These laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including pricing, customer support, education and training programs, physician consulting, research grants and other service arrangements.
We also provide electronics design and manufacturing services in North America, the United Kingdom and in the Asia Pacific region with enhanced, RoHS-compliant, printed circuit board and cable and harness assembly and box-build manufacturing services utilizing state-of-the-art automated surface mount technology lines.
We also provide electronics design and manufacturing services in North America, the United Kingdom and in the Asia Pacific region with enhanced, Rohs compliant, printed circuit board and cable and harness assembly and box build manufacturing services utilizing automated surface mount technology lines.
Such delays can occur for many reasons, including: (i) additional time necessary to coordinate and conduct factory inspections with the customer before shipment; (ii) a customer’s need to engage in time-consuming site construction to accommodate the system, over which we have no control or responsibility; (iii) additional fine tuning of such systems once they are installed; (iv) design or specification changes by the customer; (v) time needed to obtain export licenses and/or letters of credit; and (vi) delays originating from other contractors on the project.
Such delays can occur for many reasons, including: (i) additional time necessary to coordinate and conduct factory inspections with the customer before shipment; (ii) a customer’s need to engage in time-consuming site construction projects to accommodate the system, over which we may have no control or responsibility; (iii) additional fine tuning of such systems once they are installed; (iv) design or specification changes by the customer; (v) time needed to obtain export licenses and/or letters of credit; (vi) delays originating from other contractors on the project; and (vii) supply chain constraints.
These advantages include reduced manufacturing and delivery times, lower costs due to our access to competitive international labor markets and direct sourcing of raw materials.
These advantages include reduced manufacturing and delivery times, lower costs due to our access to competitive international labor markets and direct sourcing of raw materials and sub components.
Also included in the scope of the regulation are devices designed for the purpose of “prediction and prognosis” of a disease or other health condition. ● Device manufacturers will be required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the new MDR.
Also included in the scope of the regulation are devices designed for the purpose of “prediction and prognosis” of a disease or other health condition. ● Device manufacturers are being required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the new EU MDR.
We believe that our vertical integration differentiates us from many of our competitors and provides value to our customers who can rely on us to be an integrated supplier. 3 Table of Contents Capitalizing on the Market for Security and Inspection Systems.
We believe that our vertical integration differentiates us from many of our competitors and provides value to our customers who can rely on us to be an integrated supplier. Capitalizing on the Market for Security and Inspection Systems.
In the United States, the FDA has broad regulatory powers with respect to pre-clinical and clinical testing of new medical devices and the designing, manufacturing, labeling, storage, record keeping, marketing, advertising, promotion, distribution, post-approval monitoring and reporting and import and export of medical devices.
United States FDA. In the United States, the FDA has broad regulatory powers with respect to preclinical and clinical testing of new medical devices and the designing, manufacturing, labeling, storage, record keeping, marketing, advertising, promotion, distribution, post market monitoring and reporting and import and export of medical devices.
In addition, these products are designed to interact with hospital information systems. Spacelabs SafeNSound™ assists hospitals in providing value-based care by streamlining workflows and improving communications. Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside.
In addition, these products are designed to interact with hospital information systems. Spacelabs SafeNSound™ assists hospitals in providing value-based care by streamlining workflows and improving communications. Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside. These tools help address top challenges facing hospitals today.
As a result, we have leveraged, and intend to continue to leverage, such expertise and capacity to gain price, performance and agility advantages over our competitors in the security, healthcare and optoelectronics fields, and to translate such advantages into profitable growth in those fields.
As a result, we will continue to leverage such expertise and capacity to gain price, performance and agility advantages over our competitors in the security, healthcare and optoelectronics fields, and to translate such advantages into profitable growth in those fields.
These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing. Significant healthcare reforms have had an impact on medical device manufacturer and hospital revenues.
These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing. 11 Table of Contents Significant healthcare reforms have had an impact on medical device manufacturer and hospital revenues.
Manufacturers of currently approved medical devices will have a transition time to meet the requirements of the MDR. The MDR differs in several important ways from the EU’s current directives for medical devices and active implantable medical devices.
Manufacturers of currently approved medical devices will have a transition time to meet the requirements of the EU MDR. The EU MDR differs in several important ways from the EU’s directives for medical devices and active implantable medical devices replaced thereby.
We have a dedicated team updating and revising key systems, processes, and product technical documentation to meet the new MDR requirements and transition timeline. 13 Table of Contents Environmental Regulations We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products.
We have a team dedicated to updating and revising key systems, processes, and product technical documentation to meet the new EU MDR requirements. Environmental Regulations We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products.
Our cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services. Optoelectronics and Manufacturing.
Our cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services. 2 Table of Contents Optoelectronics and Manufacturing.
In the future, we believe that government agencies and commercial customers may increasingly rely on such SaaS offerings to remotely review and adjudicate screening decisions over secure networks as well as to communicate with and monitor the performance of inspectors working on the ground at distant ports, border crossings and other checkpoints.
We believe that government agencies and commercial customers will increasingly rely on such SaaS offerings to review and adjudicate screening decisions remotely, over secure networks, as well as to communicate with and monitor the performance of their employees working on the ground at distant ports, border crossings and other checkpoints.
Approximately $514 million of our backlog as of June 30, 2022 is not reasonably expected to be fulfilled in fiscal year 2023. Sales orders underlying our backlog are firm orders; although, from time to time we may agree to permit a customer to cancel an order, or an order may be cancelled for other reasons.
Approximately $0.8 billion of our backlog as of June 30, 2023 is not reasonably expected to be fulfilled in fiscal year 2024. Sales orders underlying our backlog are firm orders, although, from time to time we may agree to permit a customer to cancel an order, or an order may be cancelled for other reasons.
Due to the global COVID-19 pandemic, our divisions have experienced supply chain and labor availability challenges and travel restrictions that have impacted the price and availability of parts, components, consumables, freight, shipping, and third-party services, adversely impacting our gross margin as well as delayed product deliveries, installations, maintenance and repair work, and technical support, among other work and services.
Since the initial onset of the COVID-19 pandemic, our divisions have experienced supply chain and labor availability challenges that have impacted the price and availability of parts, components, consumables, freight, shipping, and third-party services, adversely impacting our gross margin as well as delayed product deliveries, installations, maintenance and repair work, and technical support, among other work and services.
First, our international manufacturing facilities allow us to take advantage of competitive labor rates in order to be a low-cost producer. Second, our international offices strengthen our sales and marketing efforts and our ability to service and repair our systems by providing direct access to growing markets and to our existing international customer base.
First, our international manufacturing facilities allow us to take advantage of competitive labor rates in order to lower our manufacturing costs. Second, our international offices strengthen our sales and marketing efforts and our ability to service and repair our systems by providing direct access to growing markets and to our existing international customer base.
For further discussion, please refer to Item 1A. “Risk Factors.” Patient Monitoring, Cardiology and Remote Monitoring, and Connected Care Systems. Our patient monitoring, cardiology and remote monitoring, and connected care systems are manufactured and distributed globally for use in critical care, emergency and perioperative areas within hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers.
“Risk Factors.” Patient Monitoring, Cardiology and Remote Monitoring, and Connected Care Systems. Our patient monitoring, cardiology and remote monitoring, and connected care systems are manufactured and distributed globally for use in critical care, emergency and perioperative areas within hospitals, as well as physicians’ offices, medical clinics and ambulatory surgery centers.
The most significant changes in the regulation include: ● The definition of medical devices covered under the MDR will be significantly expanded to include devices that may not have a medical intended purpose, such as colored contact lenses.
The most significant changes in the regulations include: ● The definition of medical devices covered under the EU MDR is significantly expanded to include devices that may not have a medical intended purpose, such as colored contact lenses.
The organization must document the specific qualifications of this individual relative to the required tasks. ● The MDR requires rigorous post-market oversight of medical devices. ● The MDR will allow the EU Commission or expert panels to publish “Common Specifications,” such as requirements for technical documentation, risk management, or clinical evaluation, which devices shall be required to meet. ● Devices will be reclassified according to risk, contact, duration, and invasiveness. ● Systematic clinical evaluation will be required for Class IIa and Class IIb medical devices. ● All currently approved devices must be recertified in accordance with the new MDR requirements.
The organization must document the specific qualifications of this individual relative to the required tasks. 13 Table of Contents ● The EU MDR requires rigorous post-market oversight of medical devices. ● The EU MDR allows the EU Commission or expert panels to publish “Common Specifications,” such as requirements for technical documentation, risk management, or clinical evaluation. ● Devices are to be reclassified according to risk, contact, duration, and invasiveness. ● Systematic clinical evaluation is being required for Class IIa and Class IIb medical devices. ● All approved devices must be recertified in accordance with the new EU MDR requirements.
A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities. 12 Table of Contents We are subject to similar laws in foreign countries where we conduct business.
A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities.
Department of Homeland Security’s Transportation Security Administration, as well as by various international regulatory bodies, for this purpose and are being procured and used by freight forwarders, airlines, airports, transportation companies and other businesses to fulfill their compliance requirements.
Transportation Security Administration, as well as by various international regulatory bodies, for this purpose and are procured and used by government agencies, airlines, airports, freight forwarders, transportation companies and other businesses to fulfill their compliance requirements.
Information Technology and Cybersecurity Risk Management We rely on digital technology to conduct business operations and engage with our business partners. As the complexity of our engagements grow, so do the threats from cyber intrusion, ransomware,denial of service attacks, manipulation and other cyber misconduct.
Information Technology and Cybersecurity Risk Management We rely extensively on digital technology to conduct operations and engage with our customers and business partners. As the complexity of our engagements grows, so do the threats from cyber intrusion, ransomware, denial of service, phishing, account takeover, data manipulation and other cyber misconduct.
Of the total employees, 1,984 were employed in the Americas, 3,443 were employed in Asia and 871 were employed in Europe. Available Information We are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC.
Of the total employees, 2,014 were employed in the Americas, 3,527 were employed in Asia and 882 were employed in Europe. Available Information We are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC.
Security and Inspection Systems. We design, manufacture and market security and inspection systems globally to end users under the “Rapiscan Systems,” “AS&E,” and “Gatekeeper” trade names. Our Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for various contraband and prohibited items including weapons, explosives, drugs, and radioactive and nuclear materials.
Security and Inspection Systems. We design, manufacture and market security and inspection systems globally to end users primarily under the “Rapiscan” trade name. Our Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for various contraband and prohibited items including weapons, explosives, drugs, and nuclear materials.
Through a combination of governance, risk and compliance (GRC) resources, we (i) proactively monitor IT controls to better ensure compliance with legal and regulatory requirements, (ii) assess adherence of third parties with which we partner to appropriate risk management standards, (iii) ensure essential business functions remain available during a business disruption, (iv) develop and update response plans to address potential weaknesses, and (v) maintain cyber incident management and reporting procedures.
Through a combination of governance, risk, and compliance (GRC) resources, we also (i) proactively monitor IT controls to ensure compliance with legal and regulatory requirements, (ii) perform third-party risk management assessments, (iii) ensure essential business functions remain available during business disruptions, (iv) develop and update incident response plans to address potential weaknesses, and (v) maintain cyber incident management and reporting procedures.
Industry Overview We sell our security and inspection systems and healthcare products primarily to end-users, while we design and manufacture our optoelectronic devices and value-added subsystems and provide electronics manufacturing services primarily for OEM customers. Security.
Industry Overview We sell our security and inspection solutions and healthcare products primarily to end‑users, while we design and manufacture our optoelectronic devices and value‑added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers. 1 Table of Contents Security.
These products are primarily used to verify the contents of cars, trucks or cargo containers and to detect the presence of contraband, including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items.
Our customers use these products to verify the contents of cars, trucks, rail cars and cargo containers and to detect the presence of contraband, including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items.
As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and components or within the markets for security and inspection systems, patient monitoring, cardiology and remote monitoring, or optoelectronic devices. Future competitive pressures may materially and adversely affect our business, financial condition and results of operations.
As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and components or within the markets for security and inspection systems, patient monitoring, cardiology and remote monitoring, or optoelectronic devices.
If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to material penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to material penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our results of operations. 12 Table of Contents Additionally, there has been a trend towards increased federal and state regulation of payments and other transfers of value provided to healthcare professionals or entities.
We support our employees’ financial, health, and social well-being through competitive compensation structures, including a robust employee stock purchase program and retirement benefits, as well as innovative health and well-being programs focused on promoting the physical and mental health of our workforce.
We contribute to our employees’ financial, health, and social well-being through competitive compensation structures, including a robust employee stock purchase program and retirement benefits, as well as health and well-being programs focused on promoting the physical and mental health of our workforce. We also strive to create opportunities for career development and growth.
Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airliners, and obtaining and trafficking in weapons of mass destruction and their components, to secure sensitive U.S. technologies and to identify and screen high-risk cargo before it is loaded onto airlines and ships. These initiatives, such as the Customs-Trade Partnership Against Terrorism, the U.S.
Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airplanes, and obtaining and transporting weapons of mass destruction and their components, to secure sensitive U.S. technologies, prevent human trafficking and to identify and screen cargo before it is loaded onto airplanes and ships.
We expect that a market for software-as-a-service (SaaS) platforms that are capable of integrating the data that our security inspection systems produce with related information derived from vehicle plates, cargo container numbers, drivers’ licenses, government databases, and other sources will also continue to develop, mature and grow, particularly as customers shift their operating procedures to take advantage of secure, cloud-based, networking technologies.
We plan to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate on a long-term basis security screening checkpoints for our customers. 3 Table of Contents We expect that a market for software-as-a-service (SaaS) platforms that are capable of integrating the data that security inspection systems produce with related information derived from vehicle license plates, cargo container numbers, drivers’ licenses, government databases, and other sources will also continue to develop, mature and grow, particularly as customers shift their operating procedures to take advantage of secure, cloud-based, networking technologies.
We and other medical device manufacturers will soon be confronted with major changes in the EU’s decades-old regulatory framework which governs market access to the EU. The Medical Devices Regulation (“MDR”) will replace the EU’s current Medical Device Directive (93/42/EEC) and the EU’s Directive on active implantable medical devices (90/385/EEC).
We and other medical device manufacturers are being confronted with major changes in the EU’s decades-old regulatory framework governing market access to the EU. The EU’s Medical Devices Regulation (“EU MDR”) is replacing the EU’s Medical Device Directive (93/42/EEC) and the EU’s Directive on active implantable medical devices (90/385/EEC).
Research and Development Our security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Singapore, India, and Malaysia. These products include mechanical, electrical, analog and digital electronics, software subsystems. In addition to product design, we provide system integration services to integrate our products into turnkey systems at the customer site.
Research and Development Our security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Singapore, India, and Malaysia. These products include mechanical, electrical, analog and digital electronics, and software components and subsystems.
The international market for non-intrusive inspection equipment and related services, therefore, continues to expand as countries that ship goods directly to the United States participate in such programs and as they choose to procure and operate equipment in order to secure their own borders, transportation networks, facilities and other venues. The U.S.
The international market for non‑intrusive inspection equipment and related services, therefore, continues to expand as countries satisfy the requirements of these initiatives in order to maintain direct airline connections and ship goods internationally and as they themselves choose to procure and operate equipment to secure their own borders, transportation networks, facilities and other venues. The U.S.
The loss of some of our trademarks or patents might have a negative impact on our financial results and operations.
We believe that our trademarks and trade names and patents are important to our business. The loss of some of our trademarks or patents might have a negative impact on our financial results and operations.
In the security and inspection market, competition is based primarily on factors such as product performance, functionality and quality, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships, technological capabilities of the products, price, local market presence, program execution capability, and breadth of sales and service organization.
Future competitive pressures may materially and adversely affect our business, financial condition and results of operations. 14 Table of Contents In the security and inspection market, competition is based primarily on factors such as product performance specification standards, quality and reliability, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships and reputation, technological capabilities of the products, price, local market presence, program execution capability, and breadth of sales and service organization.
Our cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various configurations, including gantry, portal and mobile systems.
Many of our inspection systems are also designed to be upgradeable to respond to new customer requirements as they emerge or change. Our cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various configurations, including mobile, portal, gantry, and rail systems.
Department of Homeland Security and international air transportation security regulators around the world require the screening of air cargo. Several of our screening systems have been approved by the U.S.
Transportation Security Administration and other international air transportation security regulators around the world require the screening of passengers, carry-on bags and air cargo. Several of our screening system models have been approved by the U.S.
As a result of terrorist attacks worldwide, security and inspection products are used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations, and nuclear facilities. The U.S.
In recent years, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, railways, seaports, cruise line terminals, sporting venues, freight forwarding operations, government and military installations and nuclear facilities.
As of June 30, 2022, we employed 6,298 people, of whom 3,900 were employed in manufacturing, 539 were employed in engineering or research and development, 627 were employed in administration, 370 were employed in sales and marketing and 862 were employed in service capacities.
As of June 30, 2023, we employed 6,423 people, of whom 3,975 were employed in manufacturing, 543 were employed in engineering or research and development, 624 were employed in administration, 342 were employed in sales and marketing and 939 were employed in service capacities.
Transportation Security Administration’s Air Cargo Screening Mandate and the U.S. Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products.
These initiatives, such as the Customs‑Trade Partnership Against Terrorism, the U.S. Transportation Security Administration’s Air Cargo Screening Mandate and the U.S. Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments across the world.
Therefore, these devices are typically subject to the PMA application process, which is more costly and time consuming than the 510(k) process and requires substantial clinical data.
The safety and effectiveness of Class III devices cannot be reasonably assured solely by the General Controls and Special Controls described above. Therefore, these devices are typically subject to the PMA application process, which is more costly and time consuming than the 510(k) process and requires substantial clinical data.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn recent years, the budgeting process has often not been completed by October 1st, which has required temporary extensions of funding authority, known as a continuing resolution. Because the provision of appropriated funds is undertaken on an annual basis and subject to budgetary rules and requirements, there can be disruptions to federal funding of current and future procurements.
Biggest changeFunding for U.S. federal Government activities takes place on an annual basis with the Government fiscal year beginning on October 1 and ending on September 30. In recent years, the budgeting process has often not been completed by October 1st, which has required temporary extensions of funding authority, known as a continuing resolution.
Some of our smaller customers know this and rely on this as an indication of the high-quality and reliability of our products and services. As a result, part of our reputation and success depends on our ability to continue to sell to larger institutions that are known for demanding high standards of excellence.
Some of our smaller customers know this and rely on this as an indication of the quality and reliability of our products and services. As a result, part of our reputation and success depends on our ability to continue to sell to larger institutions that are known for demanding high standards of excellence.
As an example, the COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help combat the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures, which has led to a global economic slowdown and impacted the financial markets of many countries.
As an example, the COVID-19 pandemic resulted in governments around the world implementing stringent measures to help combat the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures, which has led to a global economic slowdown and impacted the financial markets of many countries.
Hackers may also be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities in our systems and/or products.
Hackers may also be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities in our systems or products.
If FDA observations are not addressed to the FDA’s satisfaction, the FDA may issue a warning letter and/or proceed directly to other forms of enforcement action, which could include the shutdown of our production facilities, adverse publicity, and civil and criminal penalties.
If FDA observations are not addressed to the FDA’s satisfaction, the FDA may issue a warning letter or proceed directly to other forms of enforcement action, which could include the shutdown of our production facilities, adverse publicity, and civil and criminal penalties.
Acquisition and alliance activities often involve risks, including: ● difficulty in assimilating the acquired operations and employees and realizing synergies expected to result from the acquisition; ● potential liabilities of, or claims against, an acquired company, some of which might not be known until after the acquisition; ● difficulty in managing product co-development activities with our alliance partners; ● difficulty in effectively coordinating sales and marketing efforts; ● difficulty in combining product offerings and product lines quickly and effectively; ● difficulty in retaining the key employees of the acquired operation; ● disruption of our ongoing business, including diversion of management time; ● inability to successfully integrate the acquired technologies and operations into our businesses and maintain uniform standards, controls, policies and procedures; ● unanticipated changes in market or industry practices that adversely impact our strategic and financial expectations regarding an acquired company or acquired assets and require us to write off or dispose of such acquired company or assets; ● lacking the experience necessary to enter into new product or technology markets successfully; and ● difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
Acquisition and alliance activities often involve risks, including: ● difficulty in assimilating the acquired operations and employees and realizing synergies expected to result from the acquisition; ● potential liabilities of, or claims against, an acquired company, some of which might not be known until after the acquisition; ● difficulty in managing product development activities with our alliance partners; ● difficulty in effectively coordinating sales and marketing efforts; ● difficulty in combining product offerings and product lines quickly and effectively; ● difficulty in retaining the key employees of the acquired operation; ● disruption of our ongoing business, including diversion of management time; ● inability to successfully integrate the acquired technologies and operations into our businesses and maintain uniform standards, controls, policies and procedures; ● unanticipated changes in market or industry practices that adversely impact our strategic and financial expectations regarding an acquired company or acquired assets and require us to write off or dispose of such acquired company or assets; ● lacking the experience necessary to enter into new product or technology markets successfully; and ● difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.
We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could materially and adversely impact our business, financial condition, and results of operations.
For further discussion of the MDR, see Part I, Item 1, “Business - Regulation of Medical Devices.” We may be subject to fines, penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and business.
For further discussion of the EU MDR, see Part I, Item 1, “Business - Regulation of Medical Devices.” We may be subject to fines, penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or “off label” uses, resulting in damage to our reputation and business.
Any changes to the membership of the EU, such as the recent departure of the United Kingdom under Brexit, may impact the regulatory requirements for impacted countries and impair our business operations and our ability to market products in such countries.
Any changes to the membership of the EU, such as the departure of the United Kingdom under Brexit, may impact the regulatory requirements for impacted countries and impair our business operations and our ability to market products in such countries.
In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. 28 Table of Contents Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. 30 Table of Contents Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
If the supply chain for materials used in our production process continues to be adversely impacted by COVID-19 or otherwise, our business, financial condition, and results of operations may be adversely impacted.
If the supply chain for materials used in our production process continues to be adversely impacted by COVID-19 or otherwise, our business, financial condition, and results of operations may be materially and adversely impacted.
In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted. 23 Table of Contents Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA or applicable foreign regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.
In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted. 24 Table of Contents Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA or applicable foreign regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.
The MDR imposes a number of new requirements on manufacturers of medical devices and imposes increased compliance obligations for us to access the EEA market.
The EU MDR imposes a number of new requirements on manufacturers of medical devices and imposes increased compliance obligations for us to access the EEA market.
Government contractor or subcontractor, could result in our company or our subsidiaries being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges and, if satisfying the requisite level of seriousness, in our debarment from contracting with the U.S.
Government contractor or subcontractor, could result in our company or our subsidiaries being suspended for a period of time from eligibility for award of new government contracts or task orders or in a loss of export privileges and, if satisfying the requisite level of seriousness, in our debarment from contracting with the U.S.
If our internal controls and compliance program do not adequately prevent or deter our employees, distributors, resellers, contractors and/or other third parties with whom we do business from violating anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage.
If our internal controls and compliance program do not adequately prevent or deter our employees, distributors, resellers, contractors and/or other third parties with which we do business from violating anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage.
In a highly inflationary environment, we may be unable to raise the sales prices of our products to match the rate of inflation or our increasing operating costs, which could reduce our profit margins and have an adverse effect on our financial performance.
In a highly inflationary environment, we may be unable to raise the sales prices of our products to match the rate of inflation or our increasing operating costs, which could reduce our profit margins and have a material and adverse effect on our financial performance.
The emergence of new industry or regulatory standards and certification requirements in related fields may adversely affect the demand for our products. This could happen, for example, if new standards and technologies emerged that were incompatible with customer deployments of our applications.
The emergence of new industry or regulatory standards and certification requirements in related fields may adversely affect the demand for our products. This could happen, for example, if new standards and technologies emerge that were incompatible with customer deployments of our applications.
Decisions by an agency to terminate one of our contracts for default could negatively affect our ability to win future awards not only from such agency, but also from other government agencies and commercial customers, many of whom evaluate past performance, or are required to review past performance information, when making their procurement decisions. U.S.
Decisions by an agency to terminate one of our contracts for default could negatively affect our ability to win future awards not only from such agency, but also from other government agencies and commercial customers, many of whom evaluate past performance, or are required to review past performance information, when making their procurement decisions. 21 Table of Contents U.S.
Our remediation efforts may not be successful, and there could be interruptions, delays, or cessation of service due to cyber-attachs or other data security breaches. We often identify attempts to gain unauthorized access to our systems.
Our remediation efforts may not be successful, and there could be interruptions, delays, or cessation of service due to cyber-attacks or other data security breaches. We often identify attempts to gain unauthorized access to our systems.
Consequently, a product liability claim, product recall or other claim could have a material adverse effect on our business, financial condition and results of operations. Our global operations expose us to legal compliance risks related to certain anti-bribery and anti-corruption laws. We are required to comply with the U.S.
Consequently, a product liability claim, product recall or other claim could have a material adverse effect on our business, financial condition and results of operations. 27 Table of Contents Our global operations expose us to legal compliance risks related to certain anti-bribery and anti-corruption laws. We are required to comply with the U.S.
Nevertheless, if such a system were to fail to signal to an operator when an explosive or other contraband was in fact present, resulting in significant damage, we would be subject to risk of significant product liability claims. Security inspection by technological means is circumstance and application-specific.
Nevertheless, if such a system were to fail to signal to an operator when an explosive, weapon or other contraband was in fact present, resulting in significant loss of life or damage, we would be subject to risk of significant product liability claims. Security inspection by technological means is circumstance and application-specific.
In any such circumstance, we could face the imposition of delay penalties and breach of contract claims by our customer. Any material delay caused by our construction firm subcontractors could therefore ultimately have a material adverse effect on our business, financial condition and results of operations. 21 Table of Contents We accumulate excess inventory from time to time.
In any such circumstance, we could face the imposition of delay penalties and breach of contract claims by our customer. Any material delay caused by our construction firm subcontractors could therefore ultimately have a material adverse effect on our business, financial condition and results of operations. We accumulate excess inventory from time to time.
For more information about our litigation matters, see “Legal Proceedings” and Note 11 to the consolidated financial statements. ​ ITEM 1B. UNRESOLVED STAFF COMMENTS None. ​ 29 Table of Contents
For more information about our litigation matters, see “Legal Proceedings” and Note 11 to the consolidated financial statements. ​ 31 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None. ​
In the United States, hospital and other healthcare provider customers that purchase our products typically bill various third-party payers to cover all or a portion of the costs and fees associated with the procedures or tests in which our products are used and bill patients for any deductibles or co-payments.
In the United States, hospital and other healthcare provider customers that purchase our products typically bill various third-party payers to cover all or a portion of the costs and fees associated with the procedures or tests in which our products are used and bill patients for any deductibles or copayments.
If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues. Interruptions in our ability to purchase raw materials and subcomponents may adversely affect our profitability. We purchase raw materials and certain subcomponents from third parties.
If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues. 22 Table of Contents Interruptions in our ability to purchase raw materials and subcomponents may adversely affect our profitability. We purchase raw materials and certain subcomponents from third parties.
Such projects expose us to certain professional liability risks that are inherent in performing security inspection services for the purpose of detecting contraband items, including items that could be used in performing terrorist acts or other crimes.
Such projects expose us to certain professional liability risks that are inherent in performing security inspection services for the purpose of detecting contraband items, including items that could be used in performing terrorist acts, mass casualty events or other crimes.
We could also be subject to enforcement action under other federal or state laws, including the False Claims Act. Our failure to comply with federal, state, and foreign laws and regulations relating to our healthcare business could have an adverse effect on our business.
We could also be subject to enforcement action under other federal or state laws, including the False Claims Act. Our failure to comply with federal, state, and foreign laws and regulations relating to our healthcare business could have a material and adverse effect on our business.
If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management, future sales, profitability and financial condition. Our credit facility contains provisions that could restrict our ability to finance our future operations or engage in other business activities that may be in our interest.
If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management, future sales, profitability and financial condition. 26 Table of Contents Our credit facility contains provisions that could restrict our ability to finance our future operations or engage in other business activities that may be in our interest.
If we fail to maintain for each of our product models, options, offerings, software and services, or fail to apply in a timely way for coverage for new products, models, and services as we acquire or introduce them, or if the U.S.
If we fail to maintain SAFETY Act protections for each of our product models, options, offerings, software and services, or fail to apply in a timely way for coverage for new products, models, and services as we acquire or introduce them, or if the U.S.
Following its entry into application on May 26, 2021, the new EU Medical Devices Regulation (MDR), which replaced the EU Medical Devices Directive, introduced substantial changes to the obligations with which medical device manufacturers must comply in the EEA. High risk medical devices are subject to additional scrutiny during the conformity assessment procedure.
Following its entry into application on May 26, 2021, the EU MDR introduced substantial changes to the obligations with which medical device manufacturers must comply in the EEA. High risk medical devices are subject to additional scrutiny during the conformity assessment procedure.
Business and Industry Risks If operators of, or algorithms installed in, our security and inspection systems fail to detect weapons, explosives or other devices or materials that are used to commit a terrorist act, we could be exposed to product and professional liability and related claims for which we may not have adequate insurance coverage.
Business and Industry Risks If operators of, or algorithms installed on, our security and inspection systems fail to detect weapons, explosives or other devices or materials that are used to commit a terrorist act or other mass casualty event, we could be exposed to product and professional liability and related claims for which we may not have adequate insurance coverage.
Accordingly, our future results could be harmed by a variety of factors, including without limitation: ● changes in foreign currency exchange rates; ● changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets; ● political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict; ● longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions; ● imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions, trade disputes, and other trade restrictions; ● difficulty in staffing and managing widespread operations; ● difficulty in managing distributors and sales agents and their compliance with applicable laws; ● changes in a foreign government’s budget, leadership and national priorities; ● increased legal risks arising from differing legal systems; and ● compliance with export control and anti-corruption legislation, including but not limited to, the Foreign Corrupt Practices Act and UK Bribery Act and International Traffic in Arms Regulations.
Accordingly, our future results could be harmed by a variety of factors, including without limitation: ● changes in foreign currency exchange rates; ● changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets; ● political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict; ● longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions; ● imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions, trade disputes, and other trade restrictions; ● difficulty in staffing and managing widespread operations; ● difficulty in managing distributors and sales agents and their compliance with applicable laws; ● changes in a foreign government’s budget, leadership and national priorities; ● increased legal risks arising from differing legal systems; and ● compliance with export control and anticorruption legislation, including but not limited to, the Foreign Corrupt Practices Act and UK Bribery Act and International Traffic in Arms Regulations. 23 Table of Contents There are inherent risks associated with operations in Mexico.
We cannot provide assurance that component failures, manufacturing errors, noncompliance with quality system requirements or good manufacturing practices, design defects, software defects, and/or labeling inadequacies in any device that could result in an unsafe condition or injury to the patient will not occur.
We cannot provide assurance that there will not be component failures, manufacturing errors, noncompliance with quality system requirements or good manufacturing practices, design defects, software defects or labeling inadequacies in any device that could result in an unsafe condition or injury to the patient.
Should the new ERP system not be implemented successfully throughout all our business units on time and within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our potential ability to report accurate, timely and consistent financial results, our ability to purchase supplies, components and raw materials from suppliers, and our ability to timely deliver products and services to customers and/or collect receivables from them.
Should the new ERP system not be implemented successfully throughout all our business units, be significantly delayed or over-budget or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our potential ability to report accurate, timely and consistent financial results, our ability to purchase supplies, components and raw materials from suppliers, and our ability to timely deliver products and services to customers and/or collect receivables from them.
Our insurance coverage may be inadequate to cover all significant risk exposures. We maintain insurance for certain risks, and we believe our insurance coverage is consistent with general practices within our industry. However, the amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs.
We maintain insurance for certain risks, and we believe our insurance coverage is consistent with general practices within our industry. However, the amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs.
Our business exposes us to potential product liability risks that are inherent in the development, manufacturing, sale and service of security and inspection systems as well as in the provision of training to our customers in the use and operation of such systems.
Our business exposes us to potential product liability risks that are inherent in the development, manufacturing, sale and service of security and inspection systems, software and threat detection algorithms, as well as in the provision of training to our customers in the use and operation of such systems.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected. 19 Table of Contents The conflict between Russia and Ukraine and the related implications may negatively impact our operations.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected. The conflict between Russia and Ukraine and the related implications may negatively impact our operations. In February 2022, Russia invaded Ukraine.
In addition, any products or processes that we develop may become obsolete or uneconomical before we recover all or any of the expenses incurred in connection with their development.
In addition, any products or processes that we currently offer or plan to develop may become obsolete or uneconomical before we recover all or any of the expenses incurred in connection with their development.
We could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers, suppliers, or other third parties.
We could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers, suppliers, or other third parties; our products and services may be subject to potential cyber-attacks or other information technology vulnerabilities.
In February 2022, Russia invaded Ukraine. As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy.
As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy.
General Risks Significant inflation and increasing interest rates could adversely affect our business and financial results. The current inflation rate could adversely affect us by increasing our operating costs, including our materials, freight, and labor costs, which are already under pressure due to supply chain constraints and the continuing effects of the COVID-19 pandemic.
General Risks Significant inflation and increasing interest rates could materially and adversely affect our business and financial results. The current inflation rate could materially and adversely affect us by increasing our operating costs, including our materials, freight, and labor costs, which are already under pressure due to supply chain constraints.
In either case, the training, reliability and competence of the customer’s operator are crucial to the detection of suspicious items. Security inspection systems that signal to the operator that further investigation is required are sometimes referred to in the security industry as “automatic” detection systems.
Others use algorithms to signal to the operator that further investigation is required. In addition, the training, reliability and competence of the customer’s operator are often crucial to the detection of suspicious items. Security inspection systems that signal to the operator that further investigation is required are sometimes referred to in the security industry as “automatic” detection systems.
Staffing or personnel shortages due to pandemic-related shelter-in-place orders and quarantines have impacted and may continue to impact us and our suppliers. There have been widespread shortages in certain product categories.
The global supply chain has also been disrupted. Staffing or personnel shortages due to pandemic-related shelter-in-place orders and quarantines have impacted and may continue to impact us and our suppliers. There have been widespread shortages in certain product categories.
Our customers use our security and inspection systems to help them detect items that could be used in performing terrorist acts or other crimes. Some of our security and inspection systems require that an operator interpret an image of suspicious items within a bag, parcel, container, vehicle or other vessel. Others signal to the operator that further investigation is required.
Our customers use our security and inspection systems to help them detect items that could be used in performing terrorist acts, mass casualty events or other crimes. Some of our security and inspection systems require that an operator interpret an image of suspicious items within a bag, parcel, container, vehicle or other vessel.
Government authorities can withdraw marketing clearance or impose sanctions due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance.
Following initial clearance from regulatory authorities, we continue to be subject to extensive regulatory requirements. Government authorities can withdraw marketing clearance or impose sanctions due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance.
Additionally, even if we are able to develop new products and product enhancements, we cannot provide assurance that they will be profitable or that they will achieve market acceptance. We develop certain of our security inspection technologies to meet the certification requirements of various agencies worldwide, including the U.S. Transportation Safety Administration and the European Civil Aviation Conference among others.
Additionally, even if we are able to develop new products and product enhancements to meet any such standards, we cannot provide assurance that they will be profitable or that they will achieve market acceptance. We develop certain of our security inspection technologies to meet the certification requirements of various government regulatory agencies worldwide, including the U.S.
In addition, breaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our suppliers, customers or other third parties could expose us or any such affected third party to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business, even if we were not responsible for the breach.
Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems as well as any systems used in acquired operations. 25 Table of Contents In addition, breaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our suppliers, customers or other third parties could expose us or any such affected third party to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business, even if we were not responsible for the breach.
In addition, the terms of the SAFETY Act coverage decisions awarded to us by the U.S. Department of Homeland Security restrict coverage to specific models numbers and options within our product lines, impose other limitations, and contain conditions and requirements that we may not (or may not be able to) continue to satisfy in the future. Delays by the U.S.
Department of Homeland Security restrict coverage to specific model numbers, software, and options within our product lines, sales to specific customers, and impose various other limitations, and contain conditions and requirements that we may not (or may not be able to) continue to satisfy in the future. Delays by the U.S.
The expense and costs of any corrective actions that we may take, which may include product recalls, correction and removal of products from customer sites and/or changes to our product manufacturing and quality systems, could adversely impact our financial results.
The expense and costs of any corrective actions that we may take, which may include product recalls, correction and removal of products from customer sites and/or changes to our product manufacturing and quality systems, could adversely impact our financial results. Issuance of a warning letter may also lead customers to delay purchasing decisions or cancel orders.
In particular, the COVID-19 pandemic has significantly reduced airline passenger traffic, which reduces demand for certain of our security screening products and services. To slow and limit the transmission of COVID-19, governments across the world have imposed significant air travel restrictions and businesses and individuals have canceled air travel plans.
In particular, the COVID-19 pandemic significantly reduced airline passenger traffic, which reduced demand for certain of our security screening products and services. To slow and limit the transmission of COVID-19, governments across the world imposed significant air travel restrictions. These restrictions reduced demand for security screening products and related services at airport checkpoints globally.
Such standards are occasionally subject to change as threat and risk assessments evolve, and we may not ultimately be able to develop technologies, or develop in a timely way, solutions that are ultimately able to meet the new standards. Certain of our U.S.
We may not ultimately be able to develop technologies, or develop in a timely way solutions that are ultimately able to meet the new standards. Certain of our U.S.
In addition, since we conduct business in currencies other than the U.S. dollar but report our financial results in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, financial condition and results of operations.
In addition, since we conduct business in currencies other than the U.S. dollar but report our financial results in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, financial condition and results of operations. 18 Table of Contents U.S. budgeting process disruptions could reduce government spending, which could adversely impact our revenues, earnings, cash flows and financial condition.
Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or adoption of new tax legislation or changes in tax laws or their interpretation.
Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or adoption of new tax legislation or changes in tax laws or their interpretation. 20 Table of Contents We are also subject to the examination of our tax returns and other tax matters by the U.S.
We are also subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations.
Media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation and materially impact our business. 24 Table of Contents Given increasing cyber security threats, there can be no assurance that we will not experience business interruptions, data loss, ransom, misappropriation, or corruption or theft or misuse of proprietary information or related litigation and investigation, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.
Given increasing cyber security threats, there can be no assurance that we will not experience business interruptions, data loss, ransom, misappropriation, or corruption or theft or misuse of proprietary information or related litigation and investigation, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.
Moreover, the SAFETY Act was not designed to shield providers of qualified anti-terrorism products and services from all types of claims that may arise from acts of terrorism, including from many types of claims lodged in courts outside of the United States or acts of terrorism that occur outside of the United States, which exposes us to legal claims and litigation defense costs despite the SAFETY Act awards we have received. 25 Table of Contents Our patient monitoring, cardiology and remote monitoring, and connected care systems could give rise to product liability claims and product recall events that could materially and adversely affect our financial condition and results of operations.
Moreover, the SAFETY Act was not designed to shield providers of qualified anti-terrorism products and services from all types of claims that may arise from acts of terrorism, including from many types of claims lodged in courts outside of the United States or acts of terrorism that occur outside of the United States, which exposes us to legal claims and litigation defense costs despite the SAFETY Act awards we have received.
While factors relating the price of crude oil to demand for our products and services are complex, a period of depressed crude oil prices may adversely affect our business, financial condition, and results of operations. Unfavorable currency exchange rate fluctuations could adversely affect our financial results.
Crude oil prices are subject to rapid and significant fluctuations in response to global events and relatively minor changes in supply and demand. While factors relating the price of crude oil to demand for our products and services are complex, a period of depressed crude oil prices may adversely affect our business, financial condition, and results of operations.
Any failure or perceived failure of our Company or our products to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty, and enforcement risks, damage our reputation, and adversely affect demand for our products and force us to expend significant capital and other resources to address the privacy and security requirements of HIPAA. 26 Table of Contents In addition, there are other federal laws that include specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties.
Any failure or perceived failure of our Company or our products to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty, and enforcement risks, damage our reputation, and adversely affect demand for our products and force us to expend significant capital and other resources to address the privacy and security requirements of HIPAA.
Substantial product liability litigation currently exists within the medical device industry. Some of our patient monitoring, cardiology and remote monitoring, and connected care products may become subject to product liability claims and/or product recalls.
We face an inherent business risk of financial exposure to product liability claims if the use of our medical devices results in personal injury or death. Substantial product liability litigation currently exists within the medical device industry. Some of our patient monitoring, cardiology and remote monitoring, and connected care products may become subject to product liability claims and/or product recalls.
The loss or termination of a contract by such an institution, even if for reasons unrelated to the quality of our products or services, could therefore have a more wide-spread and potentially material adverse effect on our business, financial condition and results of operations.
The loss or termination of a contract by such an institution, even if for reasons unrelated to the quality of our products or services, could therefore have a more wide-spread and potentially material adverse effect on our business, financial condition and results of operations. 17 Table of Contents Our acquisition and alliance activities could result in disruption of our ongoing business and other operational difficulties, unrecoverable costs, and other negative consequences, any of which could adversely impact our financial condition and results of operations.
If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants.
The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants.
Once any of our patient monitoring, cardiology and remote monitoring, or connected care systems is cleared for sale, regulatory authorities may still limit the use of such product, prevent its sale or manufacture or require a recall or withdrawal of such product from the marketplace. Following initial clearance from regulatory authorities, we continue to be subject to extensive regulatory requirements.
Our products may not obtain any necessary foreign clearances on a timely basis, or at all. 29 Table of Contents Once any of our patient monitoring, cardiology and remote monitoring, or connected care systems is cleared for sale, regulatory authorities may still limit the use of such product, prevent its sale or manufacture or require a recall or withdrawal of such product from the marketplace.
Consolidation in the healthcare industry could have an adverse effect on our revenues and results of operations. The healthcare industry has been consolidating and organizations such as group purchasing organizations, independent delivery networks, and large single accounts, such as the United States Veterans Administration, continue to consolidate purchasing decisions for many of our healthcare provider customers.
The healthcare industry has been consolidating and organizations such as group purchasing organizations, independent delivery networks, and large single accounts, such as the United States Veterans Administration, continue to consolidate purchasing decisions for many of our healthcare provider customers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts.
If a contraband item were to pass through our operations and be used to perform a terrorist act or other crime, we would be subject to risk of significant professional liability claims. 16 Table of Contents In addition, there are also many other factors beyond our control that could lead to liability claims should an act of terrorism occur.
If a contraband item were to pass through our operations and be used to perform a terrorist act, mass casualty event or other crime, we would be subject to risk of significant professional liability claims.
The occurrence of any of the foregoing events could result in a material adverse effect on our business, financial condition and results of operations. 20 Table of Contents Our revenues are dependent on orders of security and inspection systems, turnkey security screening solutions and patient monitoring and cardiology and remote monitoring systems, which may have lengthy and unpredictable sales cycles.
Our revenues are dependent on orders of security and inspection systems, turnkey security screening solutions and patient monitoring and cardiology and remote monitoring systems, which may have lengthy and unpredictable sales cycles.
It is not clear at this time what changes may impact the ability of hospitals and hospital networks to purchase the patient monitoring, cardiology and remote monitoring, and connected care systems that we sell or if it will alter market-based incentives that hospitals and hospital networks currently face to continually improve, upgrade and expand their use of such equipment. 18 Table of Contents Efforts by governmental and third-party payers to reduce healthcare costs or the implementation of new legislative reforms imposing additional government controls could cause a reduction in sales or in the selling price of our products, which could adversely affect our business, financial condition and results of operations.
It is not clear at this time what changes may impact the ability of hospitals and hospital networks to purchase the patient monitoring, cardiology and remote monitoring, and connected care systems that we sell or if it will alter market-based incentives that hospitals and hospital networks currently face to continually improve, upgrade and expand their use of such equipment.
As a result of these and other risks, we cannot be certain that our previous or future acquisitions will be successful and will not materially adversely affect the conduct, operating results or financial condition of our business. 17 Table of Contents Substantial declines in crude oil prices or extended periods of low crude oil prices may adversely affect our business, financial condition, and results of operations.
If we issue equity securities as consideration in an acquisition, current stockholders percentage ownership and earnings per share may be diluted. As a result of these and other risks, we cannot be certain that our previous or future acquisitions will be successful and will not materially adversely affect the conduct, operating results or financial condition of our business.
Past terrorism attacks in the U.S. and in other locations worldwide and the potential for future attacks have caused commercial insurance for such threats to become extremely difficult to obtain. In the event that we are found liable following an act of terrorism, the insurance we currently have in place would not fully cover the claims for damages.
In the event that we are found liable following an act of terrorism or other mass casualty event, the insurance we currently have in place would not fully cover the claims for damages.
We are facing an increasingly complex international regulatory environment which is constantly changing and if we fail to comply with international regulatory requirements, or are unable to comply with changes to such requirements, our financial performance may be harmed.
GDPR creates a range of compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal information, and significantly increases financial penalties for noncompliance. 28 Table of Contents We are facing an increasingly complex international regulatory environment which is constantly changing and if we fail to comply with international regulatory requirements, or are unable to comply with changes to such requirements, our financial performance may be harmed.
In general, the extent and complexity of medical device regulation is increasing worldwide. This trend is likely to continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result. Our products may not obtain any necessary foreign clearances on a timely basis, or at all.
This trend is likely to continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result.
We face aggressive competition in each of our operating divisions. If we do not compete effectively, our business will be harmed. We encounter aggressive competition from numerous competitors in each of our divisions.
We encounter aggressive competition from numerous competitors in each of our divisions.
Some of our international customers have procurement budgets that are strongly correlated with fluctuations in the price of crude oil. Historically, the market for crude oil has been volatile and unpredictable. Crude oil prices are subject to rapid and significant fluctuations in response to global events and relatively minor changes in supply and demand.
Substantial declines in crude oil prices or extended periods of low crude oil prices may adversely affect our business, financial condition, and results of operations. Some of our international customers have procurement budgets that are strongly correlated with fluctuations in the price of crude oil. Historically, the market for crude oil has been volatile and unpredictable.
Issuance of a warning letter may also lead customers to delay purchasing decisions or cancel orders. 27 Table of Contents Our patient monitoring, cardiology and remote monitoring, and connected care systems must also comply with the laws and regulations of foreign countries in which we develop, manufacture and market such products.
Our patient monitoring, cardiology and remote monitoring, and connected care systems must also comply with the laws and regulations of foreign countries in which we develop, manufacture and market such products. In general, the extent and complexity of medical device regulation is increasing worldwide.
Our security and inspection systems offer significant capabilities, but also have performance limitations and cannot be designed to work under all circumstances. They can also malfunction, including if not properly maintained. We also offer turnkey security screening solutions under which we perform certain of the security screening tasks that have historically been performed by our customers.
Our security and inspection systems offer significant capabilities, but also have performance limitations and cannot be designed to reveal or detect contraband under all circumstances, particularly if criminal actors successfully conceal such items. They can also malfunction or underperform, including if not properly maintained.
Our international sales and our operations in foreign countries expose us to risks associated with fluctuating currency values and exchange rates. Gains and losses on the conversion of accounts receivable, accounts payable and other monetary assets and liabilities to U.S. dollars may contribute to fluctuations in our results of operations.
Gains and losses on the conversion of accounts receivable, accounts payable and other monetary assets and liabilities to U.S. dollars may contribute to fluctuations in our results of operations. We also use forward contracts which are intended to mitigate the impact of certain foreign currency exposures. These forward contracts may not completely offset foreign currency gains and losses.
Government for a specified term as well as being subject to other remedies available to the U.S. Government.
Government for a specified term as well as being subject to other remedies available to the U.S. Government. The occurrence of any of the foregoing events could result in a material adverse effect on our business, financial condition and results of operations.
The development, manufacturing and sale of medical devices expose us to significant risk of product liability claims, product recalls and, sometimes, product failure claims. We face an inherent business risk of financial exposure to product liability claims if the use of our medical devices results in personal injury or death.
Our patient monitoring, cardiology and remote monitoring, and connected care systems could give rise to product liability claims and product recall events that could materially and adversely affect our financial condition and results of operations. The development, manufacturing and sale of medical devices expose us to significant risk of product liability claims, product recalls and, sometimes, product failure claims.
Our acquisition and alliance activities could result in disruption of our ongoing business and other operational difficulties, unrecoverable costs, and other negative consequences, any of which could adversely impact our financial condition and results of operations. We intend to continue to make investments in companies, products and technologies, either through acquisitions, investments or alliances.
We intend to continue to make investments in companies, products and technologies, either through acquisitions, investments or alliances.
Removed
If we issue equity securities as consideration in an acquisition, current stockholders percentage ownership and earnings per share may be diluted.
Added
We also offer turnkey security screening solutions under which we perform some or all of the security screening tasks that have historically been performed by our customers.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−1 removed1 unchanged
Biggest changePROPERTIES As of June 30, 2022, we owned the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ Square Location Description of Facility Footage Billerica, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 186,200 Snoqualmie, Washington Headquarters and administrative, manufacturing, engineering, sales, marketing and service for our Healthcare division 177,000 Stoke on Trent, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 90,000 Surrey, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 59,000 Batam, Indonesia Manufacturing for our Optoelectronics and Manufacturing division 56,200 ​ As of June 30, 2022, we leased the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ Location Description of Facility Square Footage Expiration Hawthorne, California ​ Corporate headquarters and administrative, manufacturing, engineering, sales and marketing and service for our Optoelectronics and Manufacturing division ​ 88,000 ​ 2028 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Security division 167,600 2024 ~ 2025 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Optoelectronics and Manufacturing division 110,100 2024 ~ 2025 Torrance, California Manufacturing, engineering, sales and marketing and service for our Security division 91,900 2027 Batam, Indonesia (1) Manufacturing for our Optoelectronics and Manufacturing division 101,700 2023 ~ 2025 Andover, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 64,200 2027 (1) This is comprised of multiple leases at the same or nearby facilities.
Biggest changePROPERTIES As of June 30, 2023, we owned the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ Square Location Description of Facility Footage Billerica, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 186,200 Snoqualmie, Washington Headquarters and administrative, manufacturing, engineering, sales, marketing and service for our Healthcare division 177,000 Batam, Indonesia Manufacturing for our Optoelectronics and Manufacturing division 93,500 Stoke on Trent, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 90,000 Surrey, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 59,000 ​ As of June 30, 2023, we leased the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ Location Description of Facility Square Footage Expiration Hawthorne, California ​ Corporate headquarters and administrative, manufacturing, engineering, sales and marketing and service for our Optoelectronics and Manufacturing division ​ 88,000 ​ 2028 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Security division 167,600 2024 ~ 2025 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Optoelectronics and Manufacturing division 110,100 2024 ~ 2025 Torrance, California Manufacturing, engineering, sales and marketing and service for our Security division 91,900 2027 Batam, Indonesia (1) Manufacturing for our Optoelectronics and Manufacturing division 105,400 2023 ~ 2028 Andover, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 64,200 2027 (1) This is comprised of multiple leases at the same or nearby facilities. 32 Table of Contents We believe that our facilities are in adequate condition to support our current operations but expect to expand as necessary to support our anticipated future growth.
Accordingly, we do not believe that our failure to renew any of the leases that are scheduled to expire in the next few years will have a material adverse effect on our operations. ​ 30 Table of Contents ITEM 3.
Accordingly, we do not believe that our failure to renew any of the leases that are scheduled to expire in the next few years will have a material adverse effect on our operations. ​
We believe that our facilities are in adequate condition to support our current operations but expect to expand as necessary to support our anticipated future growth. We currently anticipate that we will be able to renew the leases that are scheduled to expire in the next few years on terms that are substantially the same as those currently in effect.
We currently anticipate that we will be able to renew the leases that are scheduled to expire in the next few years on terms that are substantially the same as those currently in effect.
Removed
LEGAL PROCEEDINGS From time to time, we are subject to legal proceedings, claims, and litigation arising in the ordinary course of our business or otherwise. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable ​ ​ 31 Table of Contents ​ PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+2 added−2 removed2 unchanged
Biggest changeUpon repurchase, the shares are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of Common Stock issued and outstanding in our consolidated financial statements. 32 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information concerning our equity compensation plans as of June 30, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ Number of securities to ​ Weighted ‑ average ​ future issuance under ​ ​ be issued upon exercise ​ exercise price of ​ equity compensation ​ ​ of outstanding options, ​ outstanding options, ​ plans (excluding securities Plan category ​ warrants and rights ​ warrants and rights ​ reflected in column (a)) ​ (a) ​ (b) (c) Equity compensation plans approved by security holders 110,645 $ 82.43 1,424,128(1)(2) Equity compensation plans not approved by security holders — ​ ​ N/A — Total 110,645 $ 82.43 1,424,128 (1) These shares are available for future issuance under our Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”), which was approved by our shareholders on December 10, 2020.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The following table provides information concerning our equity compensation plans as of June 30, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ Number of securities to ​ Weighted ‑ average ​ future issuance under ​ ​ be issued upon exercise ​ exercise price of ​ equity compensation ​ ​ of outstanding options, ​ outstanding options, ​ plans (excluding securities Plan category ​ warrants and rights ​ warrants and rights ​ reflected in column (a)) ​ (a) ​ (b) (c) ​ Equity compensation plans approved by security holders 83,677 $ 87.09 764,333 (1)(2) Equity compensation plans not approved by security holders — ​ ​ N/A — ​ Total 83,677 $ 87.09 764,333 ​ (1) These shares are available for future issuance under our Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”), which was approved by our shareholders on December 10, 2020.
This number does not include beneficial owners holding shares through nominees or in “street” name. Dividends We have not paid any cash dividends since the consummation of our initial public offering in 1997, and we have no intention of paying dividends for the foreseeable future.
This number does not include beneficial owners holding shares through nominees or in “street” name. Dividends We have not paid any dividends since the consummation of our initial public offering in 1997, and we have no intention of paying dividends for the foreseeable future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Market and Other Information Our Common Stock is traded on The Nasdaq Global Select Market under the symbol “OSIS.” As of August 15, 2022, there were approximately 99 holders of record of our Common Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Market and Other Information Our Common Stock is traded on The Nasdaq Global Select Market under the symbol “OSIS.” As of August 21, 2023, there were approximately 94 holders of record of our Common Stock.
The graph assumes that $100.00 was invested on June 30, 2017 in (a) our Common Stock, (b) The Nasdaq Composite Index, and (c) the companies comprising the peer group described above (weighted according to the issuer’s stock market capitalization at the beginning of each period for which a return is indicated). The graph assumes that all dividends were reinvested.
The peer group includes the following companies: Conmed Corp, Leidos Holdings Inc. and Smiths Group Plc. 34 Table of Contents The graph assumes that $100.00 was invested on June 30, 2018 in (a) our Common Stock, (b) The Nasdaq Composite Index, and (c) the companies comprising the peer group described above (weighted according to the issuer’s stock market capitalization at the beginning of each period for which a return is indicated).
Historical stock price performance is not necessarily indicative of future stock price performance. 33 Table of Contents This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ​ ​ ​ The following table provides the same information in tabular form as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 2018 2019 2020 2021 2022 OSI Systems, Inc. 100.00 102.90 149.87 99.32 135.25 113.69 The Nasdaq Composite Index 100.00 123.60 133.22 169.11 245.60 188.07 Peer Group 100.00 106.57 98.97 89.81 101.36 89.42 ​ ​ ITEM 6. [RESERVED] ​ 34 Table of Contents
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ​ ​ The following table provides the same information in tabular form as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 2021 2022 2023 OSI Systems, Inc. 100.00 145.65 96.52 131.44 110.49 152.37 The Nasdaq Composite Index 100.00 107.78 136.82 198.71 152.16 191.93 Peer Group 100.00 92.88 84.28 95.11 83.91 98.10 ​ ​ ITEM 6. [RESERVED] ​ 35 Table of Contents
Removed
Issuer Purchases of Equity Securities The following table contains information about the shares of Common Stock we purchased during the quarter ended June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum number (or ​ ​ ​ ​ ​ ​ ​ ​ ​ approximate dollar ​ ​ ​ ​ ​ ​ ​ ​ ​ value) of ​ ​ ​ ​ ​ ​ ​ Total number of ​ shares (or ​ ​ ​ ​ ​ ​ ​ shares (or units) ​ units) ​ ​ ​ ​ ​ ​ ​ purchased as ​ that may ​ ​ Total number of ​ Average price ​ part of publicly ​ yet be purchased ​ ​ shares (or units) ​ paid per share (or ​ announced plans or ​ under the plans or ​ Purchased unit) programs programs (1) April 1 to April 30, 2022 — ​ $ — — 1,430,737 May 1 to May 31, 2022 37,957 ​ 79.63 37,957 1,392,780 June 1 to June 30, 2022 139,379 ​ 84.45 139,379 1,253,401 ​ 177,336 ​ 83.42 177,336 ​ ​ (1) In April 2020, the Board of Directors authorized a share repurchase program of up to 1,000,000 shares of Common Stock and increased the authorization in August 2020 to 3,000,000 shares.
Added
Unregistered Sales of Equity Securities We did not sell any unregistered shares of Common Stock during the fiscal year ended June 30, 2023. Issuer Purchases of Equity Securities We did not repurchase any shares of Common Stock during the quarter ended June 30, 2023.
Removed
The peer group includes the following companies: Conmed Corp, Leidos Holdings Inc., Smiths Group Plc.
Added
The graph assumes that all dividends were reinvested. Historical stock price performance is not necessarily indicative of future stock price performance.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. ​ [RESERVED] 34 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk 44 Item 8. ​ Financial Statements and Supplementary Data 45
Biggest changeItem 6. ​ [RESERVED] ​ 35 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 36 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 43 Item 8. ​ Financial Statements and Supplementary Data ​ 44

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+8 added−42 removed29 unchanged
Biggest changeProvision for Income Taxes The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, (vi) return to provision adjustments and (vii) changes in tax legislation. 42 Table of Contents Fiscal 2022 Compared with Fiscal 2021.
Biggest changeThe 1.25% convertible notes that were previously outstanding during the year ended June 30, 2022 were retired in September 2022 using borrowings from our credit facility which carries a higher interest rate than the convertible notes. 41 Table of Contents Provision for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Fiscal Fiscal ​ ​ 2021 ​ 2022 ​ 2023 ​ ​ (Dollars in millions) Provision for income taxes ​ $ 24.6 ​ $ 24.8 ​ $ 23.5 ​ The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, (vi) return to provision adjustments and (vii) changes in tax legislation.
Security Division. Through our Security division, we provide security screening products and services globally, as well as turnkey security screening solutions. 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.
Security Division. Through our Security division, we provide security screening products, software, and services globally, as well as turnkey security screening solutions. 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.
We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise throughout the world. Currently, the U.S. federal government is discussing various options to address the U.S. federal government’s overall fiscal challenges and we cannot predict the outcome of these efforts.
We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to pursue security and inspection opportunities as they arise throughout the world. Currently, the U.S. Government is discussing various options to address the U.S. Government’s overall fiscal challenges and we cannot predict the outcome of these efforts.
Consolidated Results Discussion and analysis of our financial condition and results of operations for fiscal 2020 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2021.
Consolidated Results Discussion and analysis of our financial condition and results of operations for fiscal 2021 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2022.
We may utilize similar measures in the future to realign our operations to further increase our operating efficiencies. The effect of these efforts may materially affect our future operating results. Fiscal 2022 Compared with Fiscal 2021.
We may utilize similar measures in the future to realign our operations to further increase our operating efficiencies. The effect of these efforts may materially affect our future operating results. Fiscal 2023 Compared with Fiscal 2022.
Generally, revenue from services is recognized over time as the services are performed. Sales agreements with customers can be project specific, cover a period of time, and can be renewable periodically. The contracts may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights.
Generally, revenue from services is recognized over time as the services are performed. Sales agreements with customers can be project specific, cover a period of time, and can be renewable periodically. The contracts may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights. Contracts with customers may include the sale of products and services.
In addition to the COVID-19 pandemic, the current domestic and international political environment, including in relation to recent and further potential changes by the U.S. and other countries in policies on global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy and global trade.
The current domestic and international political environment, including in relation to recent and further potential changes by the U.S. and other countries in policies on global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy and global trade.
The following summarizes our critical accounting policies and estimates used in preparing our consolidated financial statements: Revenue Recognition. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligations are broadly categorized as product sales, service revenue, and project-spcific contract revenue.
The following summarizes our critical accounting policies and estimates used in preparing our consolidated financial statements: 38 Table of Contents Revenue Recognition. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligations are broadly categorized as product sales, service revenue, and project-specific contract revenue.
Cash Provided by Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows. During fiscal 2022, we generated cash from operations of $63.8 million compared to $139.1 million in the prior fiscal year.
Cash Provided by Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows. During fiscal 2023, we generated cash from operations of $94.8 million compared to $63.8 million in the prior fiscal year.
We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 27% of our total consolidated revenues for fiscal 2022.
We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 26% of our total consolidated revenues for fiscal 2023.
As a result of terrorist attacks and smuggling operations against the U.S. and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations and nuclear facilities.
As a result of terrorist attacks and smuggling operations against the U.S. and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, sporting venues, government and military installations, railways, and nuclear facilities.
A prolonged delay could have a material adverse effect on our business, financial condition and results of operations. 35 Table of Contents Optoelectronics and Manufacturing Division.
A prolonged delay could have a material adverse effect on our business, financial condition and results of operations. Optoelectronics and Manufacturing Division.
The gross margin declined from 36.6% to 35.9% driven by the mix of sales and increased costs. Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues and higher raw material and freight costs.
The gross margin declined from 35.9% to 33.7% driven by the mix of sales and increased costs. Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues and higher raw material costs.
The coronavirus disease 2019 (“COVID-19”) pandemic, including the emergence of new variants, has dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility.
The coronavirus disease 2019 (“COVID-19”) pandemic dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility.
During the fiscal year ended June 30, 2022, impairment, restructuring and other charges were $7.5 million and consisted of $5.1 million for legal charges, net of insurance reimbursements, $1.1 million in charges for employee terminations, $0.3 million in acquisition related costs, and $1.0 million in impairment charges.
During the fiscal year ended June 30, 2022, impairment, restructuring and other charges were $7.5 million and consisted of $5.1 million for legal charges primarily related to class action litigation and government investigations, net of insurance reimbursements, $1.1 million in charges for employee terminations, $0.3 million in acquisition related costs, and $1.0 million in impairment charges.
For the fiscal year ended June 30, 2022, interest and other expense, net was $9.0 million as compared to $16.7 million in the comparable prior-year period.
For the fiscal year ended June 30, 2023, interest and other expense, net was $20.0 million as compared to $9.0 million in the comparable prior-year period.
Liquidity and Capital Resources Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility. Cash and cash equivalents totaled $64.2 million at June 30, 2022, compared to $80.6 million at June 30, 2021. During fiscal 2022, we generated $63.8 million of cash flow from operations.
Liquidity and Capital Resources Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility. Cash and cash equivalents totaled $76.8 million at June 30, 2023, compared to $64.2 million at June 30, 2022. During fiscal 2023, we generated $94.8 million of cash flow from operations.
Inventories are stated at the lower of cost or net realizable value. We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required. Income Taxes.
We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required. Income Taxes.
Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2020-2021 ​ 2021-2022 ​ ​ ​ 2020 ​ Net Revenues ​ 2021 ​ Net Revenues ​ 2022 Net Revenues ​ % Change ​ % Change ​ ​ ​ (Dollars in millions) ​ Selling, general and administrative $ 252.0 21.6 % $ 240.7 21.0 % $ 235.6 ​ 19.9 % (5) % (2) % Research and development ​ 57.3 4.9 % 53.7 4.7 % ​ 59.6 ​ 5.0 % (6) % 11 % Impairment, restructuring and other charges ​ 6.5 0.6 % 10.1 0.9 % ​ 7.5 ​ 0.6 % 55 % (25) % Total operating expenses ​ $ 315.8 27.1 % $ 304.5 26.5 % $ 302.7 ​ 25.6 % (4) % (1) % ​ Selling, General and Administrative Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense.
Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2021-2022 ​ 2022-2023 ​ ​ 2021 ​ Net Revenues ​ 2022 ​ Net Revenues ​ 2023 Net Revenues ​ % Change ​ % Change ​ ​ ​ (Dollars in millions) ​ Selling, general and administrative ​ $ 240.7 ​ 21.0 % $ 235.6 ​ 19.9 % $ 228.3 ​ 17.9 % (2) % (3) % Research and development ​ 53.7 ​ 4.7 % 59.6 ​ 5.0 % ​ 59.4 ​ 4.6 % 11 % (0) % Impairment, restructuring and other charges ​ 10.1 ​ 0.9 % 7.5 ​ 0.6 % ​ 7.6 ​ 0.6 % (25) % 1 % Total operating expenses ​ $ 304.5 ​ 26.5 % $ 302.7 ​ 25.6 % $ 295.3 ​ 23.1 % (1) % (2) % ​ 40 Table of Contents Selling, General and Administrative Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense.
Gross profit is impacted by sales volume, productivity, and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics. Gross profit increased approximately $5 million as compared to the prior year on a 3% increase in sales.
Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics. Gross profit increased approximately $6.1 million in fiscal 2023 as compared to the prior year on an 8% increase in sales.
This has the potential to indirectly disrupt our supply chain and access to certain resources. While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.
While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.
During the fiscal years ended June 30, 2022 and 2021, we recognized a net discrete tax benefit of $7.0 million and $1.2 million, respectively, mainly related to equity-based compensation under ASU 2016-09 and changes in uncertain tax positions.
During the fiscal years ended June 30, 2023 and 2022, we recognized a net discrete tax benefit of $2.8 million and $7.0 million, respectively, primarily related to equity-based compensation under ASU 2016-09, adjustments to prior year estimates, and changes in uncertain tax positions.
Interest and Other Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ 2020 2021 2022 ​ ​ (Dollars in millions) Interest and other expense, net ​ $ 18.8 ​ $ 16.7 ​ $ 9.0 ​ Fiscal 2022 Compared with Fiscal 2021.
Interest and Other Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ 2021 2022 2023 ​ ​ (Dollars in millions) Interest and other expense, net ​ $ 16.7 ​ $ 9.0 ​ $ 20.0 ​ Fiscal 2023 Compared with Fiscal 2022.
These proceeds and $64.8 million of net bank borrowings and long-term debt were used for the following: $14.9 million invested in capital expenditures, $14.1 million for the acquisition of two businesses and $131.0 million for share repurchases and taxes paid related to the net share settlement of equity awards.
These proceeds and $5.9 million of net bank borrowings and long-term debt were used for the following: $15.8 million invested in capital expenditures, $7.1 million for the acquisition of four businesses and $46.7 million for share repurchases and taxes paid related to the net share settlement of equity awards.
As of June 30, 2022, there was $60.0 million outstanding under our revolving credit facility, $50.0 million outstanding under the term loan, and $78.5 million of outstanding letters of credit. As of June 30, 2022, the total amount available under these credit facilities was $561.5 million. See Note 8 to the consolidated financial statements for further discussion.
As of June 30, 2023, there was $215.0 million outstanding under our revolving credit facility, $143.1 million outstanding under the term loan, and $48.5 million of outstanding letters of credit. As of June 30, 2023, the total amount available under these credit facilities was $336.5 million. See Note 8 to the consolidated financial statements for further discussion.
See Note 14 to the consolidated financial statements for additional information about business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ Fiscal % of Fiscal % of ​ Fiscal ​ % of ​ 2020-2021 2021-2022 ​ ​ 2020 Net Revenues 2021 Net Revenues ​ 2022 Net Revenues ​ % Change % Change ​ ​ ​ (Dollars in millions) ​ Security ​ $ 742.0 ​ 64 % $ 633.3 ​ 55 % ​ $ 663.2 ​ 56 % (15) % 5 % Healthcare ​ 185.3 ​ 16 % ​ 212.3 19 % ​ ​ 205.7 ​ 17 % 15 % (3) % Optoelectronics / Manufacturing ​ 238.7 ​ 20 % ​ 301.3 26 % ​ ​ 314.3 ​ 27 % 26 % 4 % Total Net Revenues ​ $ 1,166.0 ​ ​ ​ $ 1,146.9 ​ ​ ​ ​ $ 1,183.2 ​ ​ ​ (2) % 3 % ​ Fiscal 2022 Compared with Fiscal 2021.
See Note 14 to the consolidated financial statements for additional information about business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2021-2022 2022-2023 ​ ​ 2021 Net Revenues 2022 Net Revenues 2023 Net Revenues % Change % Change ​ ​ ​ (Dollars in millions) ​ Security ​ $ 633.3 ​ 55 % $ 663.2 ​ 56 % $ 760.3 ​ 59 % 5 % 15 % Healthcare ​ 212.3 ​ 19 % ​ 205.7 17 % ​ 190.5 ​ 15 % (3) % (7) % Optoelectronics / Manufacturing ​ 301.3 ​ 26 % ​ 314.3 27 % ​ 327.6 ​ 26 % 4 % 4 % Total Net Revenues ​ $ 1,146.9 ​ ​ ​ $ 1,183.2 ​ ​ ​ $ 1,278.4 ​ ​ ​ 3 % 8 % ​ Fiscal 2023 Compared with Fiscal 2022.
Our products monitor patients in critical, emergency and perioperative care areas of 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. Revenues from our Healthcare division accounted for 17% of our total consolidated revenues for fiscal 2022.
Our products monitor patients in critical, emergency and perioperative care areas of 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.
The conflict also has increased the threat of malicious cyber activity from nation states and other actors. Critical Accounting Policies and Estimates The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
Critical Accounting Policies and Estimates The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
As of June 30, 2022, we had lease payment obligations of $40.0 million, with $10.9 million payable within the next 12 months. Cash Held by Foreign Subsidiaries 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.
As of June 30, 2023, we had lease payment obligations of $33.5 million, with $10.8 million payable within the next 12 months. Cash Held by Foreign Subsidiaries 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.
We believe that the diversified product portfolio and international customer mix of our Security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments.
We believe that the diversified product portfolio and international customer mix of our Security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments. However, future budgetary reductions may be implemented as both the U.S.
Revenues from our Security division accounted for 56% of our total consolidated revenues for fiscal 2022.
Revenues from our Security division accounted for 59% of our total consolidated revenues for fiscal 2023.
As described above, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic that has continued to a lesser extent throughout the duration of the pandemic. Increased healthcare capital purchases made in prior periods may result in fewer capital purchases in subsequent periods.
As described below, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic. Increased healthcare capital purchases made in prior periods may result in fewer capital purchases in subsequent periods. Government Policies.
For the fiscal year ended June 30, 2022, other income was $27.4 million, driven by the gain on sale of property and equipment primarily from the sale of corporate owned real estate in a sale leaseback transaction of the Hawthorne Property in March 2022. There was no corresponding amount during the fiscal year ended June 30, 2021.
Other Income Fiscal 2023 Compared with Fiscal 2022. During the fiscal year ended June 30, 2023, there was no other income. For the fiscal year ended June 30, 2022, other income was $27.4 million, driven by the gain on sale of property and equipment primarily from the sale of corporate owned real estate.
For the fiscal years ended June 30, 2022 and 2021, we recognized a provision for income taxes of $24.8 million and $24.6 million, respectively. The effective tax rate for the fiscal years ended June 30, 2022 and 2021 was 17.7% and 24.9%, respectively.
Fiscal 2023 Compared with Fiscal 2022. For the fiscal years ended June 30, 2023 and 2022, we recognized a provision for income taxes of $23.5 million and $24.8 million, respectively. The effective tax rate for the fiscal years ended June 30, 2023 and 2022 was 20.4% and 17.7%, respectively.
Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2022 decreased on a year-over-year basis due to (i) strong sales growth within our Optoelectronics and Manufacturing division (which has the lowest gross margin among our divisions), (ii) a reduction in revenues in our Healthcare division (which has the highest gross margin among our divisions), and (iii) a reduction in the Security division gross margin due to increased component and freight costs, a less favorable sales mix and a reduced service gross margin.
Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2023 decreased on a year-over-year basis due to (i) a reduction in the Security division gross margin due to a decrease in margin from product sales driven by a less favorable product mix and increased component costs, (ii) a reduction in sales in the Healthcare division, which carries the highest gross margin of our three divisions, and (iii) an increase in sales in the Optoelectronics and Manufacturing division, which carries the lowest gross margin of our three divisions.
While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations. We do not know how long this uncertainty will continue. These factors could have a material negative effect on our business, results of operations and financial condition. Global Trade.
We do not know how long this uncertainty will continue. These factors could have a material negative effect on our business, results of operations and financial condition. 37 Table of Contents Global Trade.
We anticipate that cash generated from our operations, in addition to existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months, including the principal payment of the convertible notes of $242.3 million maturing on September 1, 2022.
We anticipate that cash generated from our operations, in addition to existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months.
Net capital expenditures in fiscal 2022 were $14.9 million compared to $16.9 million in the prior year. Expenditures for intangible and other assets in fiscal 2022 were $15.6 million compared to $13.8 million in the prior fiscal year. In addition, purchases of certificates of deposit in fiscal 2022 were $2.2 million compared to $4.9 million in the same prior-year period.
Net capital expenditures in fiscal 2023 were $15.8 million compared to $14.9 million in the prior fiscal year. Expenditures for intangible and other assets in fiscal 2023 were $16.4 million compared to $15.6 million in the prior fiscal year.
This decrease was driven by increases in inventory, decreases in accounts payable and a reduction in customer advances, net and other changes in net working capital. Cash Used in Investing Activities. Net cash used in investing activities was $12.7 million during fiscal 2022 as compared to $34.7 million used during the prior year.
This increase was driven by lower increases in inventory, increased accounts payable and other changes in net working capital. Cash Used in Investing Activities. Net cash used in investing activities was $40.5 million during fiscal 2023 as compared to $12.7 million used during the prior year.
The healthcare markets in which we operate are highly competitive. We believe that our customers choose among competing products on the basis of product performance, functionality, value and service.
Revenues from our Healthcare division accounted for 15% of our total consolidated revenues for fiscal 2023. 36 Table of Contents The healthcare markets in which we operate are highly competitive. We believe that our customers choose among competing products on the basis of product performance, functionality, price, value and service.
Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition. 37 Table of Contents Healthcare Considerations.
This uncertainty is exacerbated by sanctions imposed by the U.S. government against certain businesses and individuals in select countries. Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition. Healthcare Considerations.
We review the status of each significant legal dispute to which we are a party and assess our potential financial exposure, if any. If the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss.
If the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.
The COVID-19 pandemic has caused, and is likely to continue to cause, significant economic disruptions and has impacted, and is expected to continue to impact, our operations and the operations of our suppliers, logistics providers and customers as a result of supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, site access, quarantine restrictions, remote work, and adjusted work schedules.
The COVID-19 pandemic caused, and may continue to cause, significant economic disruptions and impacted, and may continue to impact, our operations and the operations of our suppliers, logistics providers and customers as a result of supply chain disruptions and delays, as well as labor challenges.
Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion. Upon repurchase, the shares are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of Common Stock issued and outstanding in our consolidated financial statements. ​
Upon repurchase, the shares are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of Common Stock issued and outstanding in our consolidated financial statements. ​
We intend to continue this trend in future years, although specific programs may or may not continue to be funded and funding levels may fluctuate. R&D expenses included research related to new product development and product enhancement expenditures. 41 Table of Contents Fiscal 2022 Compared with Fiscal 2021.
Research and Development Our Security and Healthcare divisions have historically invested substantial amounts in research and development (“R&D”). We intend to continue this trend in future years, although specific programs may or may not continue to be funded and funding levels may fluctuate. R&D expenses included research related to new product development and product enhancement expenditures.
The changes in cash flows from financing activities primarily relate to (i) net proceeds from bank borrowings and other debt totaling $64.3 million in fiscal 2022 compared to net repayments of $59.3 million on bank lines of credit and debt in fiscal 2021; and (ii) $131.0 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2022 compared to $49.1 million in the prior year.
The changes in cash flows from financing activities primarily relate to (i) net repayments on bank lines of credit and the term loan of $5.9 million in fiscal 2023 compared to $64.3 million in the prior fiscal year; and (ii) $46.7 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2023 compared to $131.0 million in the prior fiscal year. 42 Table of Contents Material Cash Requirements Our material cash requirements include the following contractual and other obligations.
In our Security division, throughout the pandemic, receipt of certain orders has been delayed, most notably with respect to our aviation and cargo products, and our revenues have been adversely impacted as a result of the pandemic.
During the early stages of the pandemic, our Healthcare division experienced increased demand for certain products as a result of COVID-19. In our Security division, throughout the pandemic, receipt of certain orders was delayed, most notably with respect to our aviation and cargo products, and our revenues were adversely impacted as a result of the pandemic. Significant International Security Contracts.
We have a $750 million credit facility that is comprised of a $600 million revolving credit facility, which includes a $300 million subfacility for letters of credit, and a $150 million delayed draw term loan of which a portion was drawn. The term loan is available for us to draw until September 1, 2022.
We have a $750 million credit facility that is comprised of a $600 million revolving credit facility, which includes a $300 million sub-facility for letters of credit, and a $150 million term loan.
While cardiology sales increased by approximately $4.4 million and service, supplies and accessories sales increased by approximately $5.1 million, patient monitoring sales decreased by approximately $16.1 million as a result of the increased demand related to the COVID-19 pandemic in fiscal year 2021. ​ Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2022 increased year-over year as a result of an increase in revenue in our optoelectronics business of approximately $10 million and an increase in sales of approximately $3 million in our contract manufacturing business. ​ Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ % of ​ Fiscal ​ % of ​ Fiscal ​ % of ​ ​ 2020 Net Revenues 2021 Net Revenues 2022 Net Revenues ​ ​ ​ (Dollars in millions) ​ Gross profit ​ $ 420.6 ​ 36.1 % $ 419.9 36.6 % $ 424.4 ​ 35.9 % ​ Fiscal 2022 Compared with Fiscal 2021.
The increase in both product and service revenue was primarily driven by increased sales of cargo and vehicle inspection systems. ​ Revenues for the Healthcare division during the fiscal year ended June 30, 2023 decreased year-over-year due to a reduction in patient monitoring and cardiology sales of $12.2 million and $2.9 million, respectively. ​ Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2023 increased year-over-year as a result of increases in revenue in our optoelectronics and contract manufacturing businesses of approximately $9.2 million and $4.1 million, respectively. ​ Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ % of ​ Fiscal ​ % of ​ Fiscal ​ % of ​ ​ 2021 Net Revenues 2022 Net Revenues 2023 Net Revenues ​ ​ ​ (Dollars in millions) ​ Gross profit ​ $ 419.9 ​ 36.6 % $ 424.4 35.9 % $ 430.5 ​ 33.7 % ​ Fiscal 2023 Compared with Fiscal 2022.
Contracts with customers may include the sale of products and services. 38 Table of Contents In certain instances, contracts with customers can contain multiple performance obligations such as civil works to prepare a site for equipment installation, training of customer personnel to operate equipment, and after-market service of equipments.
In certain instances, contracts with customers can contain multiple performance obligations such as civil works to prepare a site for equipment installation, training of customer personnel to operate equipment, and after-market service of equipment. 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.
The decrease in cash used in investing activities was driven primarily by $32 million of proceeds for the sale of corporate owned real estate in a sale leaseback transaction of the Hawthorne Property. During fiscal 2022, we used cash of $14.1 million for the acquisition of businesses as compared to $3.0 million in the prior fiscal year.
During fiscal 2022, we received proceeds of $32 million from the sale of corporate owned real estate thereby reducing the amount of net cash used in investing activities in such year. During fiscal 2023, we used cash of $7.1 million for the acquisition of businesses as compared to $14.1 million in the prior fiscal year.
Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies, including U.S. and foreign government policies to manage the COVID-19 pandemic, such as travel restrictions or site closures. Changes in Costs and Supply Chain Disruptions.
Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies. Changes in Costs and Supply Chain Disruptions. Our costs are subject to fluctuations, particularly due to changes in raw material, component, and logistics costs.
As of June 30, 2022, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion.
Borrowings. Outstanding lines of credit and current and long-term debt totaled $359.6 million at June 30, 2023, an increase of $6.2 million from $353.4 million at June 30, 2022. As of June 30, 2023, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion.
Our income from operations increased to $121.7 million in 2022 or 5.5% growth from the prior year driven by the increased sales and a reduction in operating expenses of $1.9 million. Acquisitions.
Fiscal 2023 Compared with Fiscal 2022. We reported consolidated sales of $1,278.4 million in fiscal 2023, an 8.0% increase compared to the prior year. Our income from operations increased to $135.3 million in fiscal 2023 or 11.1% growth from the prior year driven primarily by increased sales and a reduction in operating expenses of $7.4 million. Acquisitions.
However, depending on how future budgetary reductions may be implemented and how the U.S. federal government and our other international customers manage their fiscal challenges, including the impact of the COVID-19 pandemic, we believe that these actions could have a material, adverse effect on our business, financial condition and results of operations. Healthcare Division.
Government and other international government customers manage fiscal challenges including those stemming from government spending that occurred during the COVID-19 pandemic; such reductions could have a material, adverse effect on our business, financial condition and results of operations. Healthcare Division.
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. 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. Inventory.
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. Inventory. Inventories are stated at the lower of cost or net realizable value.
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 others. We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S. operations.
We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S. operations.
If we are unable to mitigate the impact of increased costs through pricing or other actions, there could be a negative impact on our business, results of operations, and financial condition. Russia’s Invasion of Ukraine. The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.
We expect continued disruptions in obtaining material and freight availability as the world economies react to and recover from supply chain shortages. If we are unable to mitigate the impact of increased costs through pricing or other actions, there could be a negative impact on our business, results of operations, and financial condition. Russia’s Invasion of Ukraine.
This decrease was driven by our adoption of ASU 2020-06 (see Note 1 to the consolidated financial statements for further discussion) which was partially offset by rising interest rates and higher average levels of borrowing under our revolving credit facility during the fiscal year ended June 30, 2022 in comparison with interest rates and levels of borrowing during the same period in the prior fiscal year.
This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility during the year ended June 30, 2023 in comparison with the interest rates and levels of borrowing during the same period in the prior year.
Our costs are subject to fluctuations, particularly due to changes in raw material, component, and logistics costs. Our manufacturing and supply chain operations, including freight and shipping activities, have been and may continue to be impacted by increased vendor costs as well as the current global supply chain bottleneck.
Our manufacturing and supply chain operations, including freight and shipping activities, have been and may continue to be impacted by increased vendor costs as well as the current global supply chain challenges. Specifically, we are impacted by the global shortage of electronic components and other materials needed for production and freight availability.
During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets.
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, we may record adjustments to the provisional amounts initially recorded for the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Cash Used in Financing Activities. Net cash used in financing activities was $64.0 million during fiscal 2022, compared to $103.9 million during the prior year.
In addition, purchases of certificates of deposit in fiscal 2023 were $5.3 million compared to $2.2 million in the same prior-year period. Cash Used in Financing Activities. Net cash used in financing activities was $37.2 million during fiscal 2023, compared to $64.0 million during the prior fiscal year.
This increase was partially offset by reductions in supplies of approximately $2 million. Impairment, Restructuring and Other Charges Impairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.
Fiscal 2023 Compared with Fiscal 2022. R&D expense during the fiscal year ended June 30, 2023 was comparable to the prior fiscal year. Impairment, Restructuring and Other Charges Impairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.
We also incurred costs of $2.1 million for other employee terminations and 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. Other Income Fiscal 2022 Compared with Fiscal 2021.
During the fiscal year ended June 30, 2023, impairment, restructuring and other charges were $7.6 million and consisted of $3.9 million for legal charges, net of insurance reimbursements, $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.
Stock Repurchase Program In April 2020, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares, and in August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program. This program does not expire unless our Board of Directors acts to terminate the program.
Stock Repurchase Program In September 2022, our Board of Directors increased to 2,000,000 shares the maximum number of shares authorized under the stock repurchase program. This program does not expire unless our Board of Directors acts to terminate the program. During fiscal 2023, we repurchased 400,230 shares. As of June 30, 2023, 1,721,870 shares remained available for repurchase.
As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.
Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly.
Net Revenues The table below and the discussion that follows are based upon the way we analyze our business.
Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. 39 Table of Contents Net Revenues The table below and the discussion that follows are based upon the way we analyze our business.
Revenues for the Security division during the fiscal year ended June 30, 2022 increased on a year-over-year basis.
Revenues for the Security division during the fiscal year ended June 30, 2023 increased on a year-over-year basis due to an increase in product and service revenues of approximately $66.1 million and $31.0 million, respectively.
In addition to the COVID-19 pandemic, these other global macroeconomic factors, coupled with the U.S. political climate and political unrest internationally, have created uncertainty and impacted demand for certain of our products and services. Also, the invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.
There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, and labor shortages. These global macroeconomic factors, coupled with the U.S. political climate and political unrest internationally, have created uncertainty and impacted demand for certain of our products and services.
Trends and Uncertainties The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations. 36 Table of Contents Coronavirus Pandemic.
We acquired four businesses during fiscal 2023 and two businesses during fiscal 2022, as described in Note 2 to the Consolidated Financial Statements. None of such acquisitions was considered material. Trends and Uncertainties The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations. Global Economic Considerations.
SG&A expense for the fiscal year ended June 30, 2022 was lower than such expense in the same prior-year period due to reduced provision for losses on accounts receivable and certain bad debt recoveries totaling $16 million as well as a decrease of approximately $3 million for professional fees and other miscellaneous reductions of approximately $4 million.
SG&A expense for the fiscal year ended June 30, 2023 was $7.3 million lower than such expenses in the same prior-year period primarily due to a $5 million reduction in compensation and external commission expenses and a $1 million reduction in marketing expense, a reduction in the fair value of certain contingent liabilities, partially offset by $2 million lower bad debt recoveries and increased travel and meeting expenses compared to the same prior-year period.
During fiscal 2022, we repurchased 1,294,594 shares. As of June 30, 2022, 1,253,401 shares remained available for repurchase. The timing and actual numbers of shares purchased depends on a variety of factors, including stock price, general business and market conditions and other investment opportunities.
The timing and actual numbers of shares purchased depends on a variety of factors, including stock price, general business and market conditions and other investment opportunities. Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion.
Removed
Fiscal 2022 Compared with Fiscal 2021. We reported consolidated sales of $1,183.2 million in fiscal 2022, a 3.2% increase compared to the prior year, which drove a year-over-year increase in gross profit of $4.5 million.
Added
Also, the continued conflict between Russia and Ukraine and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations.
Removed
We acquired two small businesses during fiscal 2022 and one small business during fiscal 2021 as described in Note 2 to the consolidated financial statements, none of which were considered material.
Added
The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. This has the potential to indirectly disrupt our supply chain and access to certain resources.
Removed
Our ability to continue to operate without significant negative impacts will in part depend on our ability to protect our employees and our supply chain and to keep our manufacturing facilities open and operating effectively. We have endeavored to implement government and health authority recommendations to protect our employees worldwide including with respect to vaccine administration.
Added
The conflict also has increased the threat of malicious cyber activity from nation states and other actors. Currency Exchange Rates.
Removed
There is substantial uncertainty regarding the duration, scope, and ultimate impact of the COVID-19 pandemic. During the early stages of the pandemic and continuing to a lesser extent throughout the duration of the pandemic, our Healthcare division experienced increased demand for certain products as a result of COVID-19.
Added
On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 1.0% for the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to the strengthening of the U.S. dollar against other foreign currencies in fiscal 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest Rate Risk The principal maturity and estimated value of our long-term debt exposure for each of the fiscal years set forth below as of June 30, 2022 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2028 and ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2024 ​ 2025 ​ 2026 ​ 2027 ​ Thereafter ​ Total ​ Fair Value Convertible senior notes $ 242,302 $ — $ — $ — $ — $ — $ 242,302 $ 241,139 ​ Cash interest rate on convertible notes ​ 1.25 % — % — % — % — % — % 1.25 % 1.25 % Term loan ​ $ 1,875 ​ $ 2,500 ​ $ 2,500 ​ $ 2,500 ​ $ 40,625 ​ $ — ​ $ 50,000 ​ $ 50,000 ​ Average interest rate ​ ​ 3.40 % ​ 3.40 % ​ 3.40 % ​ 3.40 % ​ 3.40 % ​ — % ​ 3.40 % ​ 3.40 % Finance lease obligations ​ $ 594 ​ $ 483 ​ $ 60 ​ $ — ​ $ — ​ $ — ​ $ 1,137 ​ $ 1,137 ​ Average interest rate of finance lease obligations ​ 3.8 % 3.8 % — % — % — % — % 3.8 % 3.8 % ​ At June 30, 2022, we had $60 million of borrowings under our revolving credit facility and $50 million of term loan outstanding. ​
Biggest changeInterest Rate Risk The principal maturity and estimated value of our long-term debt exposure for each of the fiscal years set forth below as of June 30, 2023 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2029 and ​ ​ ​ ​ ​ ​ ​ 2024 2025 2026 2027 2028 Thereafter Total Fair Value Term loan ​ $ 7,500 ​ $ 7,500 ​ $ 7,500 ​ $ 120,625 ​ $ — ​ $ — ​ $ 143,125 ​ $ 143,125 ​ Average interest rate ​ ​ 6.20 % ​ 6.20 % ​ 6.20 % ​ 6.20 % ​ — % ​ — % ​ 6.20 % ​ 6.20 % Finance lease obligations ​ $ 576 ​ $ 492 ​ $ 301 ​ $ 73 ​ $ — ​ $ — ​ $ 1,442 ​ $ 1,442 ​ Average interest rate of finance lease obligations ​ 3.5 % 3.5 % 3.5 % 3.5 % — % — % 3.5 % 3.5 % ​ At June 30, 2023, we had $215.0 million of borrowings under our revolving credit facility and $143.1 million of term loan outstanding. ​
We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future. 44 Table of Contents Foreign Currency Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 20 countries.
We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future. 43 Table of Contents Foreign Currency Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 30 countries.
Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $14 million in fiscal 2022. Inflation Heightened levels of inflation continue to present risk for us.
Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $13.5 million in fiscal 2023. Inflation Heightened levels of inflation continue to present risk for us.
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.
A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $14 million in fiscal 2022.
A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $13.5 million in fiscal 2023.
Importance of International Markets International markets provide us with significant growth opportunities. Our financial results in future periods could, however, be adversely affected by periodic economic downturns in different regions of the world, changes in trade policies or tariffs, civil or military conflict and other political instability.
Our financial results in future periods could, however, be adversely affected by periodic economic downturns in different regions of the world, changes in trade policies or tariffs, civil or military conflict and other political instability.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk We are exposed to certain market risks, which are inherent in our financial instruments and arise from transactions entered into in the normal course of business. We may enter into derivative financial instrument transactions in order to manage or reduce market risk in connection with specific foreign-currency-denominated transactions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk We are exposed to certain market risks, which are inherent in our financial instruments and arise from transactions entered into in the normal course of business.
We do not enter into derivative financial instrument transactions for speculative purposes. We are subject to interest rate risk on our borrowings under our bank lines of credit. Consequently, our interest expense fluctuates with changes in the general level of these interest rates as we borrow under the credit facility.
We may enter into derivative financial instrument transactions in order to manage or reduce market risk in connection with specific foreign currency denominated transactions. We do not enter into derivative financial instrument transactions for speculative purposes. We are subject to interest rate risk on our borrowings under our bank lines of credit.
Added
Consequently, our interest expense fluctuates with changes in the general level of these interest rates as we borrow under the credit facility. Importance of International Markets International markets provide us with significant growth opportunities.

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