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OSI Systems, Inc. (NASDAQ: OSIS), a vertically integrated provider of specialized electronics and services, announced today that Rapiscan Systems, its Security division, has reached an agreement with the U.S. Transportation Security Administration (TSA) regarding the Rapiscan Secure 1000SP Advanced Imaging Technology (AIT) systems and Automated Target Recognition (ATR) software. The agreement relates to the contract underlying the issues raised in a “show cause” letter delivered to the Company by the TSA on November 9, 2012.
“We are pleased to reach a mutually satisfactory agreement with the TSA,” OSI Systems President and CEO, Deepak Chopra, commented. “We have had a close working relationship with TSA and its predecessor agencies for the better part of two decades, during which time we have together pioneered many of the transportation security technologies in use today. As we continue that relationship, we look forward to continuing to provide leading-edge technologies and services to the TSA.”
Under the terms of the agreement, Rapiscan and TSA determined that the Secure 1000SP would not be ready to meet the next level of ATR software by the congressionally mandated June 2013 deadline. As the Secure 1000SP has been operated by TSA as an effective imaging system, TSA plans to deploy these systems, with Rapiscan’s assistance, to U.S. government agencies that already rely on the Secure 1000 product line or can enhance their security programs with the Secure 1000SP. The agreement enables the U.S. government to continue to benefit from the investments made by TSA, while allowing TSA to meet the congressional ATR mandate. The agreement results in the mutually-agreed conclusion of ATR software development for the Secure 1000SP, but continues Rapiscan’s overall contract with TSA for AIT systems.
Under Rapiscan’s contract to provide AIT systems, the Company did not sell any AIT units to the TSA in fiscal 2012 or fiscal 2013. The Company had approximately $5 million of backlog with respect to ATR software development as of September 30, 2012, which will be de-booked. The Company expects to report a related $2.7 million one-time impairment and other charge in the quarter ended December 31, 2012. While the Company reached agreement with the TSA regarding the AIT/ATR contract, final resolution of the “show cause” letter is subject to Department of Homeland Security disposition. The Company is currently working to complete that process.