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ANNUAL REPORT 2010 Solutions for a Safer and Healthier World Sales by Segment Sales by Geography (in millions) (in millions) Healthcare Asia $207 $50 Optoelectronics EMEA $137 $126 Security Americas $251 $419 OSI Systems, Inc. is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries. We combine more than 30 years of electronics engineering and manufacturing experience with offices and production facilities in more than a dozen countries to implement a strategy of expansion into selective end- product markets. EPS* Operating Cash Flow (millions) $1.39 $52.2 $44.5 $0.91 $0.74 -$2.3 -$0.7 -$0.30 ’07 ’08 ’09 ’10 ’07 ’08 ’09 ’10 *Non-GAAP EPS excludes impairment, restructuring, and other non-recurring charges. These non-GAAP figures are provided to allow for the comparison of underlying earnings, net of non-recurring items, providing insight into the ongoing operations of OSI Systems, Inc. FELLOW SHAREHOLDERS | Fiscal 2010 was an exceptional For example, our Healthcare division successfully introduced year for OSI Systems as we continued to deliver strong the élance, an ultra-lightweight, versatile patient monitor, to growth in operating income, earnings and cash flow. We also the Chinese market where it has been enthusiastically positioned ourselves well for the future with the introduction accepted. The élance, which was developed in our state-of- of several new products and services in our Security and the-art R&D facility in Suzhou, China, is particularly well Healthcare divisions. Our operating income grew over 50% suited for international markets and has enjoyed favorable from the prior year with all three divisions making a notable receptions in India, Europe and Latin America. In addition contribution to our profitability. Our free cash flow of $34.1 to the launch of new mid-range and value products, our million allowed us to convert from a net debt position at the Healthcare division has significantly expanded sales coverage end of fiscal 2009 to a net cash position at the end of fiscal in the U.S. local hospital market. 2010. Despite operating in a very difficult economy, our Our Security division won several large contracts throughout sales grew by 1% to $595 million in fiscal 2010 and we ended the world including: a $35 million contract for a turn-key the year with a record backlog of $240 million. Our strong project for the construction and installation of baggage performance benefited our shareholders as our stock price handling systems integrated with high-speed multi-view increased 33% during the fiscal year. X-ray hold baggage screening systems at multiple Mexican Innovation: Over the past several years we have invested heav- airports; a $10 million contract to provide security screening ily in the development of new products. Fiscal 2010 has again systems to Abu Dhabi customs; a contract award from the demonstrated OSI’s innovative capability. Government of Nigeria for multiple Rapiscan Secure 1000 Single Pose body scanners; and contracts to provide security Our Security division, Rapiscan Systems, continued to expand, screening systems for the Vancouver Winter Olympic Games launching new products and new lines of business that target and South African World Cup. high value segments of the market. During fiscal 2010, Our Outlook: Rapiscan introduced two new People Screening products, Our strategy of vertically integrated manufac- which have been well received by the TSA and international turing feeding diversified and growing markets puts us on customers. In response to growing international demand for solid footing for sustainable, profitable growth. We believe Cargo and Vehicle Inspection (CVI) products, we launched the steps we took over the past several years to optimize our four new CVI products, all of which have been qualified by infrastructure and expand our markets will serve that goal the TSA for air cargo screening. In addition, a new line of well. As we ended fiscal 2010 on a very positive note with a mobile and towable CVI solutions addresses the needs of the strong fourth quarter and a record backlog, our prospects for growing border security and force protection markets. Also, fiscal 2011 and beyond are bright. as part of the launch of our screening solutions business Our greatest asset is our 3,200 employees, which include over S2 Global we were awarded a 10-year contract from the 750 engineers, scientists, and service specialists all over the Puerto Rico Ports Authority to provide a complete turn-key world and I would like to express my heartfelt thanks to each solution for the scanning of all containerized inbound cargo of them for their accomplishments. We are proud that OSI at the Port of San Juan. Systems designs and builds products that protect soldiers in Meanwhile, our Healthcare division, Spacelabs, successfully the field, provide security for critical infrastructure and allow launched new products within each of our three healthcare healthcare providers more time and enhanced capabilities to business areas, with two new patient monitors, two cardiol- care for their patients. ogy products and a new anesthesia line. These new products Respectfully submitted, extend Spacelabs’ reach into mid-tier markets that we had not previously addressed, further diversifying our revenue base. Expanded Markets. Fiscal 2010 was a year that also saw us make inroads into several emerging markets positioning OSI for sustainable, market-diversified growth. DEEPAK CHOPRA Chairman of the Board, Chief Executive Officer and President page 01 Rapiscan Systems Leader in safety | Our Security Division, Rapiscan Systems, is a leading supplier of security inspec- tion solutions utilizing X-ray and gamma-ray imaging and advanced threat identification techniques such as neutron and diffraction analysis. Our products are sold into four market segments: Baggage and Parcel Inspection, Cargo and Vehicle Inspection, Hold Baggage Screening and People Screening. Through product innovation and careful targeting of growth opportunities, Rapiscan focuses on providing solutions that meet demanding security requirements while offering customers outstanding value in the security screening and inspection industry. For example, we launched the Rapiscan Secure 1000 Single Pose Body Scanner and Rapiscan Secure 1000MP (Modular and Portable) Body Scanner, designed specifically for the aviation and military markets, respectively. The recent launch of a new line of dual view large tunnel screening systems, utilizing our proprietary transmission X-ray technology, will serve a growing market for high performance air cargo screening solutions. For customers interested in a turn-key approach to security, our screening solutions business offers a range of outsourced screening services, thereby giving Rapiscan the ability to serve customers that want Rapiscan to operate screening systems on their behalf. Our research and new product development efforts have produced innovative solutions for the current security needs of our customers and are designed to meet emerging threats. We are a leading provider of security screening solutions and we continue to enhance and build upon our current position of strength. For an integrated approach to screening and inspection of cargo, vehicles, baggage, and people, we have the broadest solution portfolio in the industry. page 020 Connecting innovation with care. Collaborating with clinical and technological partners to develop real world solutions. Spacelabs Healthcare Global leadership | Our Healthcare Division, Spacelabs, is a provider of innovative medical systems and services. Serving clinicians and healthcare facilities around the world, we provide products and life cycle service and support for Patient Monitoring, Anesthesia Delivery & Ventilation, and Diagnostic Cardiology needs. In Patient Monitoring, Spacelabs recently launched the Ultraview DM3 Dual Mode Vital Signs Monitor for lower acuity environments. The DM3 combines the simplicity of a spot-check monitor with the sophistication of continuous monitoring. We also recently launched the Ultraview SL2900 supporting the clinical requirements of the highest acuity environments. In our Diagnostic Cardiology division, we revamped our resting ECG product line with the launches of the CardioExpress SL12 and SL6 offering the same high end performance as our Voyager line at price points that make these competitive products in markets throughout the world. In our Anesthesia business, we launched the new Manley value line into our channels in India and Latin America offering unprecedented price/performance for these developing markets. In addition to the new offerings, we expanded our selling efforts to meet the needs of smaller hospitals and clinics in the U.S. representing additional growth opportunities from this mar- ket segment. page 03 OSI Optoelectronics Innovative solutions | Our Optoelectronics division designs, manufactures and markets opto- electronic products and provides electronics manufacturing services (EMS) for use in a broad range of applications for commercial, military, aerospace, industrial, healthcare and homeland security applications. Our products are widely used in training and simulation systems, satellite and missile guidance systems, medical imaging and diagnostic systems, among others. In addition, Optoelectronics is also a critical supplier to Rapiscan Systems and Spacelabs Healthcare.