Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Mar. 31, 2018	Apr. 27, 2018
Document and Entity Information
Entity Registrant Name	OSI SYSTEMS INC
Entity Central Index Key	0001039065
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		18,072,644
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 194,001	$ 169,650
Accounts receivable, net	216,680	206,526
Inventories	304,293	248,510
Prepaid expenses and other current assets	61,362	28,314
Total current assets	776,336	653,000
Property and equipment, net	113,667	141,539
Goodwill	300,716	242,129
Intangible assets, net	147,057	118,450
Deferred income taxes	2,334	34,897
Other assets	55,921	40,072
Total assets	1,396,031	1,230,087
CURRENT LIABILITIES:
Bank lines of credit	228,000	103,000
Current portion of long-term debt	2,252	2,396
Accounts payable	101,571	76,121
Accrued payroll and related expenses	35,248	34,621
Advances from customers	70,115	37,934
Other accrued expenses and current liabilities	121,295	92,062
Total current liabilities	558,481	346,134
Long-term debt	247,029	241,750
Deferred income taxes	41,642	20,681
Other long-term liabilities	66,493	52,309
Total liabilities	913,645	660,874
Commitments and contingencies (Note 9)
Stockholders' Equity:
Preferred stock, $0.001 par value -10,000,000 shares authorized; no shares issued or outstanding
Common stock, $0.001 par value -100,000,000 shares authorized; issued and outstanding, 18,689,568 shares at June 30, 2017 and 18,065,430 shares at March 31, 2018	166,633	222,529
Retained earnings	329,631	363,872
Accumulated other comprehensive loss	(13,878)	(17,188)
Total stockholders' equity	482,386	569,213
Total liabilities and stockholders' equity	$ 1,396,031	$ 1,230,087

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares	Mar. 31, 2018	Jun. 30, 2017
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized shares	100,000,000	100,000,000
Common stock, shares issued	18,065,430	18,689,568
Common stock, shares outstanding	18,065,430	18,689,568

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Net revenues:
Products	$ 182,484	$ 168,238	$ 529,530	$ 488,285
Services	84,815	76,908	272,430	220,264
Total net revenues	267,299	245,146	801,960	708,549
Cost of goods sold:
Products	126,419	116,862	363,063	348,500
Services	43,295	42,256	148,411	123,339
Total cost of goods sold	169,714	159,118	511,474	471,839
Gross profit	97,585	86,028	290,486	236,710
Operating expenses:
Selling, general and administrative	59,846	49,431	175,591	144,528
Research and development	15,934	14,395	46,122	39,811
Impairment, restructuring and other charges	14,062	2,508	23,489	21,885
Total operating expenses	89,842	66,334	245,202	206,224
Income from operations	7,743	19,694	45,284	30,486
Interest expense, net	(4,783)	(2,583)	(14,317)	(5,716)
Other income, net	158	2,094	161	2,088
Income before income taxes	3,118	19,205	31,128	26,858
Provision for income taxes	565	5,186	65,369	7,329
Net income (loss)	$ 2,553	$ 14,019	$ (34,241)	$ 19,529
Earnings (loss) per share:
Basic (in dollars per share)	$ 0.14	$ 0.74	$ (1.82)	$ 1.03
Diluted (in dollars per share)	$ 0.13	$ 0.72	$ (1.82)	$ 1.00
Shares used in per share calculation:
Basic (in shares)	18,569	18,913	18,773	18,964
Diluted (in shares)	19,146	19,515	18,773	19,585

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Net income (loss)	$ 2,553	$ 14,019	$ (34,241)	$ 19,529
Other comprehensive income (loss):
Foreign currency translation adjustment	1,366	1,697	3,272	(3,303)
Other	103	15	38	134
Other comprehensive income (loss)	1,469	1,712	3,310	(3,169)
Comprehensive income (loss)	$ 4,022	$ 15,731	$ (30,931)	$ 16,360

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net income (loss)	$ (34,241)	$ 19,529
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	55,368	49,042
Stock based compensation	17,754	20,262
Provision for losses on accounts receivable	1,054	863
Deferred income taxes	50,775	101
Amortization of debt discount and issuance costs	6,426	779
Impairment charges	7,181	5,418
Gain on sale of business		(2,110)
Other	1,071	222
Changes in operating assets and liabilities-net of business acquisitions:
Accounts receivable	7,131	(20,677)
Inventories	(48,703)	26,410
Prepaid expenses and other assets	(22,121)	(6,017)
Accounts payable	19,522	6,733
Advances from customers	32,152	(27,417)
Deferred revenues	6,964	(16,582)
Other	15,431	(4,385)
Net cash provided by operating activities	115,764	52,171
Cash flows from investing activities:
Acquisition of property and equipment	(36,432)	(11,979)
Acquisition of businesses, net of cash acquired	(103,184)	(191,238)
Net proceeds from sale of business		12,793
Acquisition of intangible and other assets	(2,250)	(4,034)
Net cash used in investing activities	(141,866)	(194,458)
Cash flows from financing activities:
Net borrowings (payments) on bank lines of credit	125,000	(32,000)
Proceeds from long-term debt	626	280,261
Payments on long-term debt	(1,933)	(2,716)
Proceeds from exercise of stock options and employee stock purchase plan	6,608	9,953
Repurchase of common stock	(59,684)	(48,453)
Taxes paid related to net share settlements of equity awards	(20,574)	(9,922)
Net cash provided by financing activities	50,043	197,123
Effect of exchange rate changes on cash	410	(734)
Net increase in cash and cash equivalents	24,351	54,102
Cash and cash equivalents-beginning of period	169,650	104,370
Cash and cash equivalents-end of period	194,001	158,472
Supplemental disclosure of cash flow information:
Interest	6,508	4,286
Income taxes	$ 21,728	$ 16,108

Basis of Presentation

9 Months Ended

Mar. 31, 2018

Basis of Presentation

Basis of Presentation

1. Basis of Presentation

Basis of Presentation

The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The results of operations for the nine months ended March 31, 2018 are not necessarily indicative of the operating results to be expected for the full 2018 fiscal year or any future periods.

Use of Estimates

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

Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. For each period presented where we reported a net loss, the effect of all potentially dilutive securities would be antidilutive, and, as a result, diluted net loss per common share is the same as basic net loss per common share. Stock options and stock awards to purchase 0.3 million shares of common stock for the three months ended March 31, 2018, were excluded from the calculation because to include such options and awards would have been antidilutive. During the nine months ended March 31, 2018, all stock options and stock awards were excluded. During the three months and nine months ended March 31, 2017, the number of stock options and stock awards excluded from the calculation because they were antidilutive was de minimis. Prior to our adoption of ASU 2016-09 in the fourth quarter of fiscal 2017, we included tax benefits in assessing whether equity awards were dilutive and in our calculations of weighted average diluted shares under the treasury stock method. The underlying equity component of the 1.25% convertible senior notes due 2022 (the “Notes”) discussed in Note 6 to the condensed consolidated financial statements will have no impact on diluted earnings per share until the average price of our common stock exceeds the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion.

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

	Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2018		2017		2018
Net income (loss) available to common stockholders	$	14,019	$	2,553	$	19,529	$	(34,241	)


Weighted average shares outstanding—basic	18,913		18,569		18,964		18,773

Dilutive effect of equity awards	602		577		621		—
Weighted average shares outstanding—diluted	19,515		19,146		19,585		18,773

Basic earnings (loss) per share	$	0.74	$	0.14	$	1.03	$	(1.82	)
Diluted earnings (loss) per share	$	0.72	$	0.13	$	1.00	$	(1.82	)

Cash Equivalents

We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.

Our cash and cash equivalents totaled $194.0 million at March 31, 2018. Nearly all of this amount was held by our subsidiaries primarily in Mexico, United Kingdom, Malaysia, Puerto Rico, and Singapore, and to a lesser extent in India, Canada, Germany and China among others. We have cash holdings that exceed insured limits for financial institutions; however, we mitigate this risk by utilizing high credit quality financial institutions throughout the world.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, derivative instruments, accounts receivable, accounts payable and debt instruments. The carrying values of financial instruments, other than long term debt instruments, are representative of their fair values due to their short term maturities. The carrying values of our long term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates available to us.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. “Level 1” category includes assets and liabilities at quoted prices in active markets for identical assets and liabilities. “Level 2” category includes assets and liabilities from observable inputs other than quoted market prices. “Level 3” category includes assets and liabilities for which valuation techniques are unobservable and significant to the fair value measurement. There were no assets where “Level 3” valuation techniques were used. As further discussed in Note 9 to the condensed consolidated financial statements, our contingent payment obligations related to acquisitions are valued using “Level 3” valuation techniques on a recurring basis. The fair values of our financial assets and liabilities as of June 30, 2017 and March 31, 2018 are categorized as follows (in thousands):

	June 30, 2017								March 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Equity securities	$	254	$	—	$	—	$	254	$	17	$	—	$	—	$	17
Insurance company contracts	—		26,940		—		26,940		—		31,384		—		31,384
Interest rate swap agreement	—		20		—		20		—		22		—		22

Total assets	$	254	$	26,960	$	—	$	27,214	$	17	$	31,406	$	—	$	31,423

Liabilities—contingent payment obligations	$	—	$	—	$	11,840	$	11,840	$	—	$	—	$	16,667	$	16,667

Derivative Instruments and Hedging Activity

Our use of derivatives consists of an interest rate swap agreement. The interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to variable, LIBOR based debt for the duration of the term loan described in Note 6. The interest rate swap matures in October 2019. The interest rate swap is considered an effective cash flow hedge and, as a result, the net gains or losses on such instrument were reported as a component of Other comprehensive income (loss) in the consolidated financial statements and will be reclassified to the statement of operations when the hedge transaction settles.

Revenue Recognition

Product Sales. We recognize revenue from sales of products upon shipment when title and risk of loss passes and when terms are fixed and collection is probable. In an instance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the acceptance criteria unless customer acceptance terms are perfunctory or inconsequential.

Service Revenue. Revenue from services includes after-market services, installation and implementation of products and turnkey security screening services. Generally, revenue from services is recognized when the services are performed. Revenues from out-of-warranty service maintenance contracts are recognized ratably over the respective terms of such contracts. Deferred revenue for such services arises from payments received from customers for services not yet performed.

Multiple-Deliverable Arrangements. We enter into certain agreements with customers for the sale of capital equipment involving multiple elements that may include civil works to prepare a site for the installation of equipment, manufacture and delivery of equipment, installation and integration of equipment, training of customer personnel to operate the equipment and after-market service of the equipment. The timetable for fulfilment of each of these deliverables can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods. The general timing of revenue recognition for each deliverable may be dependent upon several milestones, including physical delivery of equipment, completion of factory acceptance test, completion of site acceptance test, installation and connectivity of equipment, certification of training of personnel and, in the case of after-market service deliverables, the passage of time (typically evenly over the post-warranty period of the service deliverable).

Multiple-deliverable arrangements require that consideration be allocated to each deliverable based on its relative selling price and recognized as revenue when the revenue recognition criteria for each deliverable has been met. The arrangement is separated into more than one unit of accounting if the delivered item has value to the customer on a stand-alone basis; and with respect to an arrangement including a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within our control. If these criteria are not met, the arrangement is accounted for as one unit of accounting and the recognition of revenue is deferred until delivery is complete or is recognized ratably over the contract period as appropriate. If these criteria are met, consideration is allocated at inception of the arrangement to all deliverables on the basis of the relative selling price. We have generally met these criteria for multiple-deliverable arrangements as all of the deliverables in our arrangements have stand-alone value in that either the customer can resell that item or another vendor sells that item separately. We typically do not offer a general right of return in our multiple-deliverable arrangements.

The selling price of each deliverable is determined by establishing vendor-specific objective evidence (“VSOE”), third party evidence (“TPE”) or best estimate of selling price (“BESP”) for each delivered item. Generally, either VSOE or TPE is determinable; however, in the few instances where neither VSOE nor TPE is determinable, we utilize our BESP in order to allocate consideration to those deliverables. BESP for our product deliverables is determined by utilizing a weighted average price approach. BESP for our service deliverables is determined primarily by utilizing a cost-plus margin approach, though in some instances average price per hour is used.

We often provide a guarantee to support our performance under multiple-deliverable arrangements. In the event that customers are permitted to terminate such arrangements, the underlying contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination.

Proportional Performance. In connection with our previous agreement with the Servicio de Administración Tributaria (“SAT”) in Mexico, in effect through January 13, 2018, revenue had been recognized based upon proportional performance, measured by the actual number of labor hours incurred divided by the total estimated number of labor hours for the project. The impact of changes in the estimated labor hours to service the agreement was reflected in the period during which the change became known. In the SAT agreement, customer billings were submitted for several separate deliverables, including monthly services, activation of services, training of customer personnel and consultation on the design and location of security scanning operations, among others. In the event that payments received from the customer exceeded revenue recognition, deferred revenue was recorded. In January 2018, we entered into a new, two-year contract with SAT to continue providing security screening services. Revenue under the new contract is recognized as Service revenues as services are performed.

New Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) amending revenue recognition requirements for multiple deliverable revenue arrangements. This update provides guidance on how revenue is recognized for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. This determination is made in five steps: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for fiscal years beginning after December 15, 2017 and for interim reporting periods within such fiscal years. We are currently evaluating our business and contracts to determine any changes to accounting policies or processes necessary to adopt the requirements of the new standard and are in the process of selecting a transition method. Our preliminary evaluation of the impact of this ASU is that it will not have a material impact on our financial condition or results of operations. However, the adoption of this ASU will result in expanded disclosures in first quarter of fiscal 2019.

In January 2016, FASB issued an ASU which affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. This guidance retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair value and that do not qualify for the practical expedient permitted by the guidance to estimate fair value. A policy election can be made for these investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within such fiscal years. We have not yet adopted this ASU and are currently evaluating the impact it may have on our financial condition and results of operations.

In February 2016, the FASB issued an ASU which affects the accounting for leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The amendment also will require qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. This ASU is effective for us in the first quarter of fiscal 2020 with early adoption permitted. We have not yet adopted this ASU and are currently evaluating the impact it may have on our financial condition and results of operations.

In August 2016, the FASB issued an ASU to address the diverse classifications being applied to cash receipts and payments in reporting companies’ cash flow statements. This ASU addresses eight specific cash flow issues to reduce divergence in practice. This ASU is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within such fiscal years. We have not yet adopted this ASU and are currently evaluating the impact it may have on our financial condition and results of operations.

Recently Adopted Accounting Pronouncements

In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step 2, the computation of the implied fair value of goodwill to determine the amount of impairment, from the goodwill impairment test. In computing the implied fair value of goodwill for Step 2 under current accounting standards, we calculate the fair value of our assets and liabilities as if acquired or assumed in a business combination. Under the amendments in this update, we will determine the amount of goodwill impairment by comparing the Step 1 fair value of a reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its Step 1 fair value, a goodwill impairment charge is recognized. The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. We elected to early adopt the new standard effective October 1, 2017, because the ASU significantly simplifies the evaluation of goodwill for impairment. The adoption of this standard did not have an impact on our financial condition and results of operations.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). In connection with the enactment of the Tax Act, we recognized a charge of $56 million in the second quarter of fiscal 2018. The charge included our current estimate of the tax on accumulated overseas profits and the revaluation of deferred tax assets and liabilities. As we have a June 30 fiscal year end, the Tax Act’s lower corporate tax rate will be phased in, and is expected to result in a U.S. statutory federal tax rate of approximately 28% for the fiscal year ending June 30, 2018. The provisional estimates are based on our initial analysis of the Tax Act. The changes included in the Tax Act are broad and complex. The final impacts of the Tax Act may differ materially from the amounts estimated due to, among other things, changes in interpretation of the Tax Act, any legislative action that may be taken to address questions arising due to the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act or any updates or changes to estimates we have utilized to calculate the impacts, including impacts from changes to current year earnings estimates and foreign exchange rates. The SEC has issued rules, including Staff Accounting Bulletin 118 (“SAB 118”), that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments during the 2018 calendar year.

Business Combinations

9 Months Ended

Mar. 31, 2018

Business Combinations

Business Combinations

2. Business Combinations

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

Acquisition of Explosive Trace Detection Business

On July 7, 2017, we acquired the global explosive trace detection business (“ETD”) from Smiths Group plc. We financed the total purchase price of $80.5 million with a combination of cash on hand and borrowing under our existing revolving bank line of credit.

Due to the timing and complexity of the ETD transaction, we are in the process of finalizing our valuation of the assets acquired and liabilities assumed. As of March 31, 2018, the valuation of certain assets and liabilities of ETD were preliminary in nature as we are awaiting the conclusion of the valuation of certain assets by a third party and resolution of carving out certain assets and liabilities from the prior owners of the business. As a result, the ETD acquisition could necessitate the use of the full one year measurement period to establish the fair values of assets and liabilities as of the acquisition date, including intangible assets, goodwill, accounts receivable, inventory, deferred revenue, property and equipment, contractual obligations, income tax obligations, and certain reserves. Changes in the fair values of assets and liabilities from what was previously reported in our condensed consolidated financial statements are primarily a result of additional information that impacted our estimates of fair value and conformance to our accounting policies. During the quarter ended March 31, 2018, goodwill decreased by $0.2 million, driven primarily by reduction of accounts receivable reserve of $1.2 million offset by reduction in fair value of inventory of $0.8 million, and an increase of $0.2 million in accrued liabilities. Further potential adjustments made could be material in relation to these preliminary values below (amounts in thousands):

Cash and cash equivalents	$	4
Accounts receivable, net	13,358
Inventories	11,456
Property and equipment	1,599
Intangible assets	30,040
Other long-term assets	297
Accounts payable	(4,784		)
Accrued payroll and related expenses	(2,356		)
Deferred revenues — current	(1,629		)
Accrued warranties	(2,068		)
Other accrued expenses and current liabilities	(1,582		)

Net assets acquired	44,335
Goodwill	36,132

Total consideration	$	80,467

The goodwill is largely attributable to expected growth, intellectual capital and the assembled workforce of the ETD business.

Intangible assets are recorded at estimated fair value, as determined by management based on available information, which includes a preliminary valuation prepared by a third party. The fair value attributed to the intangible assets acquired was based on preliminary estimates, assumptions and other information compiled by management, and valuations that utilized established valuation techniques. The value attributed to goodwill and intangible assets is partially non-deductible for income tax purposes. The following table summarizes the fair value of acquired identifiable intangible assets as of the acquisition date (amounts in thousands):

	Weighted
	Average	Fair
	Lives	Value
Amortizable assets:
Developed technology	10 years	$	13,220
Customer relationships	8 years	12,920
Backlog	2 years	3,500

Total amortizable assets		29,640
Non-amortizable asset — IPR&D		400

Total intangible assets		$	30,040

The condensed consolidated statements of operations include $17.6 million of revenue and $3.1 million of income from operations from ETD for the three months ended March 31, 2018, and $59.0 million of revenue and $9.8 million of income from operations from ETD for the period from July 7, 2017 to March 31, 2018.

The following unaudited pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the ETD acquisition occurred at the beginning of the periods presented or the results which may occur in the future. The following unaudited pro forma results of operations assume the ETD acquisition had occurred on July 1, 2016 (in thousands):

	Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2018		2017		2018
Revenues	$	260,695	$	267,299	$	763,612	$	801,960

Income from operations	$	21,003	$	7,743	$	38,772	$	45,284

Significant pro forma adjustments incorporated into the pro forma results above include the recognition of additional amortization expense related to acquired intangible assets. The pro forma results for the three and nine months ended March 31, 2017 were carved out from the operations of the business when it was owned by its former parent. These carve-out results have been prepared from the historical accounts of its former parent, and include revenues and expenses specifically identified to ETD, and allocations of certain overhead expenses.

Acquisition of American Science and Engineering

On September 9, 2016, we acquired by merger 100% ownership of American Science and Engineering, Inc. (“AS&E”), a leading provider of detection solutions for advanced cargo, parcel, and personnel inspection. AS&E’s operations are included in our Security division. We financed the total cash merger consideration of $266 million with a combination of cash on hand and borrowing under our existing revolving bank line of credit, and also issued restricted stock units (“RSUs”) of the Company to replace RSUs previously issued by AS&E. Immediately following the close of the acquisition, we used $69 million of AS&E’s existing cash on hand to pay down the revolving bank line of credit. The valuation of the estimated fair value of the assets acquired and liabilities assumed as a result of this business combination has been finalized.

Other Acquisitions

In July 2017, we (through our Security division) completed an acquisition of a privately held technology company. The acquisition purchase price was financed with cash on hand and was in an amount including potential earnout consideration determined to be insignificant by management.

On January 12, 2018, we (through our Optoelectronics and Manufacturing division) acquired an electronics component designer and manufacturer for approximately $22 million, plus up to $6 million in potential earnout consideration. In aggregate, $12.6 million was attributed to intangible assets, $10.9 million was attributed to goodwill, and $3.2 million was attributed to net assets acquired. The acquisition was financed with cash on hand and borrowing under our existing revolving bank line of credit.

Balance Sheet Details

9 Months Ended

Mar. 31, 2018

Balance Sheet Details

Balance Sheet Details

3. Balance Sheet Details

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

	June 30, 2017			March 31, 2018

Accounts receivable	$	216,089		$	226,217
Less allowance for doubtful accounts	(9,563		)	(9,537		)

Accounts receivable, net	$	206,526		$	216,680

	June 30, 2017		March 31, 2018

Raw materials	$	129,645	$	157,434
Work-in-process	65,454		85,273
Finished goods	53,411		61,586

Inventories	$	248,510	$	304,293

	June 30,			March 31,
	2017			2018
Land, buildings, civil works and improvements	$	171,335		$	73,893
Leasehold improvements	9,025			9,317
Equipment and tooling	166,991			115,220
Furniture and fixtures	3,371			3,429
Computer equipment	17,991			18,801
Computer software	17,303			19,146
Computer software implementation in process	2,590			3,344
Construction in process	1,049			1,239

Total	389,655			244,389
Less accumulated depreciation and amortization	(248,116		)	(130,722		)

Property and equipment, net	$	141,539		$	113,667

In September 2017, we purchased the AS&E facility in Billerica, MA for $19.8 million. Depreciation expense was approximately $13.3 million and $5.4 million for the three months ended March 31, 2017 and 2018, respectively, and approximately $39.9 million and $38.4 million for the nine months ended March 31, 2017 and 2018, respectively.

In January 2018, we entered into a new two-year agreement with the Mexican government to continue providing security screening services. Upon inception of the new contract, we transferred certain fixed assets to the customer, and this remaining cost to obtain the contract is amortized on a straightline basis as corresponding revenues are recognized. As of March 31, 2018, $14.7 million and $11.6 million are recorded within Prepaid expenses and other current assets and Other assets, respectively.

Goodwill and Intangible Assets

9 Months Ended

Mar. 31, 2018

Goodwill and Intangible Assets

Goodwill and Intangible Assets

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill for the nine month period ended March 31, 2018 were as follows (in thousands):

	Security		Healthcare		Optoelectronics and Manufacturing		Consolidated
Balance as of June 30, 2017	$	155,083	$	40,129	$	46,917	$	242,129
Goodwill acquired or adjusted during the period	43,106		—		14,080		57,186
Foreign currency translation adjustment	259		248		894		1,401

Balance as of March 31, 2018	$	198,448	$	40,377	$	61,891	$	300,716

Intangible assets consisted of the following (in thousands):

	June 30, 2017							March 31, 2018
	Gross							Gross
	Carrying		Accumulated			Intangibles		Carrying		Accumulated			Intangibles
	Value		Amortization			Net		Value		Amortization			Net
Amortizable assets:
Software development costs	$	26,753	$	(6,291	)	$	20,462	$	27,777	$	(8,709	)	$	19,068
Patents	8,386		(1,676		)	6,710		8,757		(1,603		)	7,154
Developed technology	37,446		(5,530		)	31,916		50,637		(8,902		)	41,735
Customer relationships/backlog	38,289		(7,667		)	30,622		63,830		(14,078		)	49,752

Total amortizable assets	110,874		(21,164		)	89,710		151,001		(33,292		)	117,709
Non-amortizable assets:
Trademarks and trade names	25,540		—			25,540		25,748		—			25,748
IPR&D	3,200		—			3,200		3,600		—			3,600

Intangible assets, net	$	139,614	$	(21,164	)	$	118,450	$	180,349	$	(33,292	)	$	147,057

Amortization expense related to intangible assets was $3.6 million and $5.1 million for the three month periods ended March 31, 2017 and 2018, respectively. For the nine months ended March 31, 2017 and 2018, amortization expense was $9.1 million and $13.8 million, respectively. At March 31, 2018, the estimated future amortization expense was as follows (in thousands):

2018 (remaining 3 months)	$	5,522
2019	21,600
2020	18,823
2021	18,347
2022	13,840
Thereafter, including assets that have not yet begun to be amortized	39,577

Total	$	117,709

Software development costs for software products incurred before establishing technological feasibility are charged to operations. Software development costs incurred after establishing technological feasibility are capitalized on a product by product basis until the product is available for general release to customers at which time amortization begins. Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product bear to the total current and anticipated future revenues for that product. In the event that future revenues are not estimable, such costs are amortized on a straight line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above. For the three months ended March 31, 2018, we capitalized software development costs in the amount of $1.0 million; while during the three months ended March 31, 2017, we did not capitalize any software development costs. For the nine-month periods ended March 31, 2017 and 2018, we capitalized software development costs in the amount of $2.0 million and $1.3 million, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

Impairment, restructuring and other charges

9 Months Ended

Mar. 31, 2018

Impairment, restructuring and other charges

Impairment, restructuring and other charges

5. Impairment, restructuring and other charges

Impairment

During the nine months ended March 31, 2018, we abandoned (i) a product line in our Security division that became redundant as a result of the ETD acquisition, (ii) two non-core product lines in our Healthcare division, and (iii) certain trademarks in our Optoelectronics and Manufacturing division that are no longer used. As a result, $7.1 million of assets, including intangible and fixed assets, were written off as we determined that these assets have no value and were permanently impaired. $4.0 million of this was incurred during the three months ended March 31, 2018 and related to the abandonment of a product line in our Healthcare division that we no longer sell.

Restructuring and Other Charges

We endeavor to align our global capacity and infrastructure with demand by our customers as well as fully integrate acquisitions, thereby improving operational efficiency.

Beginning in fiscal 2017 we incurred professional fees to complete the acquisition of ETD. Such costs totaled $2.1 million through the third quarter of fiscal 2018. This included $0.2 million and $1.1 million during the three and nine months ended March 31, 2018, respectively. During the three and nine months ended March 31, 2018, we accrued $3.8 million and $8.1 million, respectively, for legal and estimated settlement costs. For the three and nine months ended March 31, 2018, we incurred charges of $0.4 million and $1.2 million, respectively, for facility consolidation and employee terminations.

The following table summarizes impairment, restructuring and other charges for the periods set forth below (in thousands):

	Three Months Ended March 31, 2017
	Security Division		Healthcare Division		Optoelectronics and Manufacturing Division		Corporate			Total
Acquisition-related costs	$	—	$	—	$	—	$	140		$	140
Employee termination costs	345		182		52		—			579
Facility closures/consolidation	650		634		194		—			1,478
Other charges (reversals)	—		297		19		(5		)	311

Total expensed	$	995	$	1,113	$	265	$	135		$	2,508

	Three Months Ended March 31, 2018
	Security Division		Healthcare Division			Optoelectronics and Manufacturing Division		Corporate		Total
Impairment charges	$	91	$	3,946		$	—	$	—	$	4,037
Acquisition-related costs	—		—			—		77		77
Employee termination costs	18		3			269		—		290
Facility closures/consolidation	117		(8		)	—		—		109
Legal and accrued settlement costs	—		5,766			—		3,783		9,549

Total expensed	$	226	$	9,707		$	269	$	3,860	$	14,062

	Nine Months Ended March 31, 2017
	Security Division		Healthcare Division		Optoelectronics and Manufacturing Division			Corporate		Total
Impairment charges	$	5,332	$	86	$	—		$		$	5,418
Acquisition-related costs	810		—		—			3,353		4,163
Employee termination costs	8,152		1,262		383			—		9,797
Facility closures/consolidation	829		703		218			—		1,750
Other charges (reversals)	7		297		(48		)	501		757

Total expensed	$	15,130	$	2,348	$	553		$	3,854	$	21,885

	Nine Months Ended March 31, 2018
	Security Division		Healthcare Division		Optoelectronics and Manufacturing Division		Corporate		Total
Impairment charges	$	1,581	$	4,525	$	1,075	$	—	$	7,181
Acquisition-related costs	—		—		—		1,258		1,258
Employee termination costs	348		3		415		—		766
Facility closures/consolidation	198		235		—		—		433
Legal and accrued settlement costs	—		9,966		—		3,885		13,851

Total expensed	$	2,127	$	14,729	$	1,490	$	5,143	$	23,489

The changes in the accrual for restructuring and other charges for the nine-month period ended March 31, 2018 were as follows (in thousands):

	Acquisition- related Costs			Employee Termination Costs			Facility Closure/ Consolidation Cost			Legal Charges			Total
Balance as of June 30, 2017	$	—		$	175		$	291		$	—		$	466
Restructuring and other charges	1,258			767			433			13,851			16,309
Payments and other adjustments	(1,258		)	(840		)	(315		)	(5,737		)	(8,150		)

Balance as of March 31, 2018	$	—		$	102		$	409		$	8,114		$	8,625

Borrowings

9 Months Ended

Mar. 31, 2018

Borrowings

Borrowings

6. Borrowings

Revolving Credit Facility

In December 2016, we entered into an amendment to our revolving credit facility, which, among other things, increased the aggregate committed amount available to us from $450 million to $525 million and extended the maturity date to December 2021. The credit facility includes a $300 million sub-limit for letters of credit. Under certain circumstances, we have the ability to increase the facility by the greater of $250 million or such amount as would not cause our secured leverage ratio to exceed a specified level. Borrowings under this facility bear interest at LIBOR plus a margin of 1.50% as of March 31, 2018, but this margin can range from 1.25% to 2.0% based on our consolidated net leverage ratio as defined in the credit facility. Letters of credit reduce the amount available to borrow by their face value. The unused portion of the facility bears a commitment fee of 0.20% as of March 31, 2018, but this fee can range from 0.20% to 0.30% based on our consolidated net leverage ratio as defined in the credit facility. Our borrowings under the credit agreement are guaranteed by certain of our U.S. based subsidiaries and are secured by substantially all of our and certain of our subsidiaries’ assets. The agreement contains various representations and warranties, affirmative, negative and financial covenants and conditions of default. As of March 31, 2018, there was $228.0 million of borrowings outstanding under the revolving credit facility and $33.3 million outstanding under the letters of credit sub facility. The amount available to borrow under the credit facility as of March 31, 2018 was $263.7 million. Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term. Although the principal amount of each revolving loan is due and payable in full on the maturity date, we have the right to repay each revolving loan in whole or in part from time to time without penalty. It is our practice to routinely borrow and repay several times per year under this revolving facility. Therefore, borrowings under the credit facility are included in current liabilities. As of March 31, 2018, we are in compliance with all covenants under this credit facility.

1.25% Convertible Senior Notes Due 2022

In February 2017, we issued $287.5 million of the Notes in a private offering. The Notes are governed by an indenture dated February 22, 2017. The maturity for the payment of principal is September 1, 2022. The Notes bear interest at the rate of 1.25% and are payable in cash semiannually in arrears on each March 1 and September 1. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries, as well as any of our existing and future indebtedness that may be guaranteed by our subsidiaries to the extent of such guarantees (including the guarantees of certain of our subsidiaries under our existing revolving credit facility).

The Notes are convertible prior to March 1, 2022 only upon specified events and during specified periods and are, thereafter convertible, at any time, in each case at an initial conversion rate of 9.3056 per $1,000 principal amount of the Notes, which is equal to an initial conversion price of approximately $107.46 per share or a 38.5% premium to our stock price at the time of the issuance. The conversion rate is subject to adjustment upon certain events. Upon conversion, the Notes may be settled, at our election, in shares of our common stock, cash or a combination of cash and shares of common stock. We have initially elected a combination settlement method to satisfy the conversion obligation, which allows us to settle the principal amount of the Notes in cash and to settle the excess conversion value, if any, in shares of common stock, as well as cash in lieu of fractional shares.

We may not redeem the Notes prior to March 6, 2020. Thereafter, we may redeem the Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days. If we undergo a fundamental change, as defined in the indenture for the Notes, subject to certain conditions, holders of the Notes may require us to repurchase all or part of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The occurrence of a fundamental change will also result in the Notes becoming immediately convertible.

Pursuant to ASC 470-20, we allocated the $287.5 million gross proceeds of the Notes between liability and equity components. The initial $242.4 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature for similar terms and priced on the same day the Notes were issued. The initial $45.1 million equity component represents the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes. Issuance costs of $7.7 million were allocated between debt ($6.5 million) and equity ($1.2 million) components with the portion allocated to the debt presented as an offset against long term debt in the consolidated balance sheet and being amortized as interest expense over the life of the Notes using the effective interest method. The total interest expense recognized for the three months and nine months ended March 31, 2018 was $3.1 million and $9.2 million, respectively, which consists of $0.9 million and $2.7 million of contractual interest expense, $1.9 million and $5.6 million of debt discount amortization and $0.3 million and $0.9 million of amortization of debt issuance costs. As of March 31, 2018, the unamortized debt discount was $38.9 million, which is being amortized over the remaining contractual term to maturity of the Notes using an effective interest rate of 4.50%. The unamortized debt issuance cost of $5.2 million as of March 31, 2018 is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes. Based on our March 29, 2018 stock price of $65.27 per share, the “if-converted” value of the Notes did not exceed the principal amount.

Other Borrowings

Several of our foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters-of-credit. As of March 31, 2018, $60.3 million was outstanding under these lines-of-credit facilities. As of March 31, 2018, the total amount available under these credit facilities was $12.9 million.

In September 2012, we entered into a seven year term loan agreement for $11.1 million to fund the acquisition of land and a building in the state of Washington. The loan, which bears interest at LIBOR plus 1.25%, is payable on a monthly basis over seven years. Concurrent with entering into the floating rate loan, we entered into an interest rate swap agreement that effectively locks the interest rate of the loan to 2.2% per annum for the term of the loan.

Long-term debt consisted of the following (in thousands):

	June 30, 2017			March 31, 2018
1.25% convertible notes due 2022:
Principal amount	$	287,500		$	287,500
Unamortized discount	(42,602		)	(37,045		)
Unamortized debt issuance costs	(6,073		)	(5,191		)

1.25% convertible notes due 2022, net of unamortized discount and debt issuance costs	238,825			245,264
Term loans	3,700			2,511
Other long-term debt	1,621			1,506

	244,146			249,281
Less current portion of long-term debt	(2,396		)	(2,252		)

Long-term portion of debt	$	241,750		$	247,029

Stockholders' Equity

9 Months Ended

Mar. 31, 2018

Stockholders' Equity

Stockholders' Equity

7. Stockholders’ Equity

Stock-based Compensation

On December 11, 2017, our stockholders approved our Amended and Restated 2012 Incentive Award Plan (the “2012 Plan”), which, among other things, increased the maximum number of shares of common stock which may be issued under such plan by 1.6 million shares. As of March 31, 2018, we maintained the following share based employee compensation plans: the 2012 Plan and the Amended and Restated 2006 Equity Participation Plan (“2006 Plan”). No further grants may be made under the 2006 Plan. In addition, pursuant to the acquisition of AS&E, we assumed two share based employee compensation plans: the AS&E 2005 Equity and Incentive Plan (“2005 AS&E Plan”) and the AS&E 2014 Equity and Incentive Plan (“2014 AS&E Plan”). No new RSU grants will be made under the 2005 AS&E Plan or the 2014 AS&E Plan. The 2012 Plan, the 2006 Plan, the 2005 AS&E Plan and the 2014 AS&E Plan are collectively referred to as the “OSI Plans”.

We recorded stock-based compensation expense in the condensed consolidated statements of operations as follows (in thousands):

	Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2018			2017			2018
Cost of goods sold	$	417		$	251		$	1,116		$	739
Selling, general and administrative	5,627			5,614			15,909			16,574
Research and development	159			149			335			441
Restructuring	—			—			2,902			—

Stock-based compensation expense before taxes	$	6,203		$	6,014		$	20,262		$	17,754
Less: related income tax benefit	(2,378		)	(1,864		)	(7,828		)	(5,492		)

Stock-based compensation expense, net of estimated taxes	$	3,825		$	4,150		$	12,434		$	12,262

As of March 31, 2018, total unrecognized compensation cost related to share based compensation grants under the OSI Plans were estimated at $0.7 million for stock options and $19.9 million for RSUs. We expect to recognize these costs over a weighted average period of 2.0 years with respect to the stock options and 1.9 years for grants of RSUs.

The following summarizes stock option activity during the nine months ended March 31, 2018:

	Number of Options		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2017	780,671		$	30.00
Granted	25,379		$	85.83
Exercised	(113,255	)	$	22.73
Expired or forfeited	(5,730	)	$	73.38