Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Sep. 30, 2019	Oct. 22, 2019
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	000-23125
Entity Registrant Name	OSI SYSTEMS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	33-0238801
Entity Address, Address Line One	12525 Chadron Avenue
Entity Address, City or Town	Hawthorne
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	90250
City Area Code	(310)
Local Phone Number	978-0516
Title of 12(b) Security	Common Stock
Trading Symbol	true
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Interactive Data Current	Yes
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		18,357,463
Entity Central Index Key	0001039065
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 85,142	$ 96,316
Accounts receivable, net	245,093	238,440
Inventories	268,761	273,711
Prepaid expenses and other current assets	38,140	32,432
Total current assets	637,136	640,899
Property and equipment, net	128,293	127,385
Goodwill	306,713	307,108
Intangible assets, net	129,633	132,954
Other assets	88,327	56,518
Total assets	1,290,102	1,264,864
CURRENT LIABILITIES:
Bank lines of credit	95,000	88,000
Current portion of long-term debt	801	804
Accounts payable	100,942	93,500
Accrued payroll and related expenses	31,794	43,521
Advances from customers	49,845	43,227
Other accrued expenses and current liabilities	116,320	112,956
Total current liabilities	394,702	382,008
Long-term debt	260,007	257,752
Deferred income taxes	7,832	7,979
Other long-term liabilities	85,997	65,398
Total liabilities	748,538	713,137
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, 18,167,020 shares at June 30, 2019 and 18,357,464 shares at September 30, 2019	141,049	168,913
Retained earnings	420,284	399,541
Accumulated other comprehensive loss	(19,769)	(16,727)
Total stockholders' equity	541,564	551,727
Total liabilities and stockholders' equity	$ 1,290,102	$ 1,264,864

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares	Sep. 30, 2019	Jun. 30, 2019
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	18,357,464	18,167,020
Common stock, shares outstanding	18,357,464	18,167,020

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Net revenues:
Total net revenues	$ 290,852	$ 266,249
Cost of goods sold:
Total cost of goods sold	191,641	170,336
Gross profit	99,211	95,913
Operating expenses:
Selling, general and administrative	62,177	61,707
Research and development	14,246	13,753
Restructuring and other charges (benefit), net	(2,099)	4,196
Total operating expenses	74,324	79,656
Income from operations	24,887	16,257
Interest expense and other expense, net	(4,736)	(5,332)
Income before income taxes	20,151	10,925
(Provision) benefit for income taxes	592	(1,523)
Net income	$ 20,743	$ 9,402
Earnings per share:
Basic (in dollars per share)	$ 1.14	$ 0.52
Diluted (in dollars per share)	$ 1.10	$ 0.50
Shares used in per share calculation:
Basic (in shares)	18,259	18,090
Diluted (in shares)	18,903	18,736
Products
Net revenues:
Total net revenues	$ 209,761	$ 182,480
Cost of goods sold:
Total cost of goods sold	146,342	125,371
Services
Net revenues:
Total net revenues	81,091	83,769
Cost of goods sold:
Total cost of goods sold	$ 45,299	$ 44,965

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Net income	$ 20,743	$ 9,402
Other comprehensive income (loss):
Foreign currency translation adjustment	(3,052)	1,173
Other	10	6
Other comprehensive income (loss)	(3,042)	1,179
Comprehensive income	$ 17,701	$ 10,581

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Common	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Jun. 30, 2018	$ 169,475	$ 334,745	$ (14,784)	$ 489,436
Balance (in shares) at Jun. 30, 2018	18,032,374
Increase (Decrease) in Shareholders' Equity
Exercise of stock options	$ 269			269
Exercise of stock options (in shares)	9,034
Vesting of RSUs (in shares)	340,082
Shares issued under employee stock purchase program	$ 2,022			2,022
Shares issued under employee stock purchase program (in shares)	39,293
Stock based compensation	$ 5,463			5,463
Repurchase of common stock	$ (7,844)			(7,844)
Repurchase of common stock (in shares)	(104,146)
Taxes paid related to net share settlement of equity awards	$ (12,625)	0	0	(12,625)
Taxes paid related to net share settlement of equity awards (in shares)	(163,514)
Net income		9,402		9,402
Other comprehensive income (loss)			1,179	1,179
Balance at Sep. 30, 2018	$ 156,760	344,147	(13,605)	487,302
Balance (in shares) at Sep. 30, 2018	18,153,123
Balance at Jun. 30, 2019	$ 168,913	399,541	(16,727)	$ 551,727
Balance (in shares) at Jun. 30, 2019	18,167,020			18,167,020
Increase (Decrease) in Shareholders' Equity
Exercise of stock options	$ 2,832			$ 2,832
Exercise of stock options (in shares)	167,306
Vesting of RSUs (in shares)	360,866
Shares issued under employee stock purchase program	$ 2,065			2,065
Shares issued under employee stock purchase program (in shares)	34,837
Stock based compensation	$ 6,416			6,416
Repurchase of common stock	$ (13,262)			(13,262)
Repurchase of common stock (in shares)	(126,051)
Taxes paid related to net share settlement of equity awards	$ (25,915)	0	0	(25,915)
Taxes paid related to net share settlement of equity awards (in shares)	(246,514)
Net income		20,743		20,743
Other comprehensive income (loss)			(3,042)	(3,042)
Balance at Sep. 30, 2019	$ 141,049	$ 420,284	$ (19,769)	$ 541,564
Balance (in shares) at Sep. 30, 2019	18,357,464			18,357,464

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 20,743	$ 9,402
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of effects from acquisitions:
Depreciation and amortization	13,539	14,147
Stock-based compensation expense	6,416	5,463
Deferred income taxes	(3)	(3,386)
Amortization of debt discount and issuance costs	2,308	2,220
Other	(61)	49
Changes in operating assets and liabilities-net of business acquisitions:
Accounts receivable	(6,940)	(8,701)
Inventories	4,167	(28,690)
Prepaid expenses and other assets	(13,272)	(9,913)
Accounts payable	7,594	9,177
Accrued payroll and related expenses	(11,675)	(9,585)
Advances from customers	6,673	18,409
Other	(4,651)	(1,413)
Net cash (used in) provided by operating activities	24,838	(2,821)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(6,026)	(7,875)
Acquisition of businesses, net of cash acquired		(18,259)
Acquisition of intangible and other assets	(2,088)	(4,176)
Net cash used in investing activities	(8,114)	(30,310)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on bank lines of credit	7,000	53,000
Proceeds from long-term debt	198	468
Payments on long-term debt	(253)	(649)
Proceeds from exercise of stock options and employee stock purchase plan	4,897	2,289
Payments of contingent consideration	(144)	(217)
Repurchases of common stock	(13,262)	(7,844)
Taxes paid related to net share settlement of equity awards	(25,915)	(12,625)
Net cash provided by (used in) financing activities	(27,479)	34,422
Effect of exchange rate changes on cash	(419)	306
Net change in cash and cash equivalents	(11,174)	1,597
Cash and cash equivalents-beginning of period	96,316	84,814
Cash and cash equivalents-end of period	85,142	86,411
Cash paid, net during the period for:
Interest	2,986	3,702
Income taxes	$ 4,098	$ 13,998

Basis of Presentation

3 Months Ended

Sep. 30, 2019

Basis of Presentation

Basis of Presentation

1. Basis of Presentation

Description of Business

OSI Systems, Inc., together with our subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products in diversified markets, including homeland security, healthcare, defense and aerospace.

We have three reporting segments: (i) Security, providing security inspection systems and related services, and turnkey security screening solutions; (ii) Healthcare, providing patient monitoring and diagnostic cardiology products and related services and (iii) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions as well as to external original equipment manufacturer ("OEM") customers and end users for applications in the defense, aerospace, medical and industrial markets, among others.

Through our Security segment, we provide security screening products and related services internationally. These products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation detection; and explosive and narcotics trace detection. In addition to these products, we also provide site design, installation, training and technical support services to our customers. We also provide turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening checkpoints for our customers.

Through our Healthcare segment, we design, manufacture, market and service patient monitoring and diagnostic cardiology systems and related supplies and accessories internationally. These products are used by care providers in critical care, emergency and perioperative areas within hospitals as well as physicians' offices, medical clinics and ambulatory surgery centers, among others.

Through our Optoelectronics and Manufacturing segment, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services internationally for use in a broad range of applications, including aerospace and defense electronics, X-ray security and inspection systems and medical imaging, chemistry analysis and diagnostics instruments, telecommunications, scanners and industrial automations, automotive diagnostic systems, internet of things (IoT) and consumer wearable products. This division provides products and services to OEM customers and end users as well as to our Security and Healthcare divisions.

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, 2019 filed with the SEC. The results of operations for the three months ended September 30, 2019 are not necessarily indicative of the operating results to be expected for the full 2020 fiscal year or any future periods.

Use of Estimates

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

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 1.25% convertible senior notes due 2022 (the “Notes”) discussed in Note 6 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price because the principal amount of the Notes is intended to be settled in cash upon conversion. The dilutive effect of the Notes is included in the calculation below for the three months ended September 30, 2019. There was no dilutive effect of the Notes for the three months ended September 30, 2018.

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


	Three Months Ended September 30,
	2018		2019
Net income available to common stockholders	$	9,402	$	20,743

Weighted average shares outstanding—basic		18,090		18,259
Dilutive effect of equity awards		646		628
Dilutive effect of the Notes		—		16
Weighted average shares outstanding—diluted		18,736		18,903

Basic earnings per share	$	0.52	$	1.14
Diluted earnings per share	$	0.50	$	1.10

Shares excluded from diluted earnings per share due to their anti-dilutive effect		42		84

Cash and Cash Equivalents

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

Our cash and cash equivalents totaled $85.1 million at September 30, 2019. Of this amount, approximately 71% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in Singapore, the United Kingdom, Malaysia, Canada and to a lesser extent in Mexico, Germany, and Albania 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, insurance company contracts, 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, as 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.The "Level 1" category includes assets and liabilities measured at quoted prices in active markets for identical assets and liabilities. The"Level 2" category includes assets and liabilities measured from observable inputs other than quoted market prices.The "Level 3" category includes assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement. As of June 30, 2019 and September 30, 2019, there were no assets in the "Level 3" category. Our contingent payment obligations related to acquisitions, which are further discussed in Note 9 to the condensed consolidated financial statements, are in the “Level 3” category for valuation purposes.

The fair values of our financial assets and liabilities are categorized as follows (in thousands):


	June 30, 2019								September 30, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Insurance company contracts	$	—	$	35,899	$	—	$	35,889	$	—	$	36,486	$	—	$	36,486
Liabilities:
Contingent consideration	$	—	$	—	$	16,577	$	16,577	$	—	$	—	$	16,578	$	16,578

Revenue Recognition

We recognize revenue under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which superseded all prior revenue recognition methods and industry-specific guidance. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of control for promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue principles, an entity is required to identify the contract(s) with a customer, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance obligations and recognize revenue when the performance obligation is satisfied (i.e., either over time or at a point in time). ASC 606 further requires that companies disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

Product Sales. We recognize revenue from sales of products upon shipment or delivery when control of the product transfers to the customer, depending on the terms of each sale, and when collection is probable. In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential. We generally offer customers payment terms of less than one year. In cases when payment terms extend beyond one year, we consider whether the contract has a significant financing component.

Service Revenue. Revenue from services includes installation and implementation of products and turnkey security screening services and after-market services. Generally, revenue from services is recognized over time as 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.

Contract Revenue. 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. In certain instances, we consider an accepted customer order, governed by a master sales agreement, to be the contract with the customer when legal rights and obligations exist. Contracts with customers may include the sale of products and services, as discussed in the paragraphs above. In certain instances, contracts can contain multiple performance obligations as discussed in the paragraph below. According to the terms of a sale contract, we may receive consideration from a customer prior to transferring goods to the customer, and we record these prepayments as a contract liability. We also record deferred revenue, typically related to service contacts, when consideration is received before the services have been performed. We recognize customer deposits and deferred revenue as net sales after all revenue recognition criteria are met.

When determining revenue recognition for contracts, we use judgment based on our understanding of the obligations within each contract. We determine whether or not customer acceptance criteria are perfunctory or inconsequential. The determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognition. Critical judgments also include estimates of warranty reserves, which are established based on historical experience and knowledge of the product under warranty.

Multiple Performance Obligations. Certain agreements with customers include 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. 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.

In cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price. The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met.

The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service. When there is only one performance obligation associated with a contract, the entire amount of consideration is attributed to that obligation. When a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price, which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances. In circumstances when a selling price is not directly observable, we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin.

The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods. The timing of revenue recognition for each performance obligation 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).

We often provide a guarantee to support our performance under multiple performance obligations. 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.

We disaggregate revenue by reporting segment (Security, Optoelectronics and Manufacturing, and Healthcare) to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 11 to our condensed consolidated financial statements for additional details of revenues by reporting segment.

Contract Assets and Liabilities. We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to ASC 606 and, at times, recognize revenue in advance of the time when contracts give us the right to invoice a customer. We may also receive consideration, per the terms of a contract, from customers prior to transferring goods to the customer. We record customer deposits as a contract liability. Additionally, we may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, we record a deferred revenue liability. We recognize these contract liabilities as sales after all revenue recognition criteria are met.

The table below shows the balance of our contract assets and liabilities as of June 30, 2019 and September 30, 2019, including the change between the periods (in thousands):


	June 30,		September 30,
Contract Assets:	2019		2019		Change		% Change
Unbilled revenue	$	19,287	$	38,257	$	18,970	98	%


Contract Liabilities:
Advances from customers	$	43,227	$	49,845	$	6,618	15	%
Deferred revenue—current		33,641		29,900		(3,741)	(11)	%
Deferred revenue—long-term		9,506		8,656		(850)	(9)	%

Contract assets increased during the three months ended September 30, 2019 primarily due to satisfaction of performance obligations for explosive detection systems and cargo and vehicle inspection systems in our Security division which have not yet been billed to customers. The net increase in contract liabilities were primarily due to deposits received on cargo and vehicle system contracts in our Security division.

Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period. As of September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $150.1 million. We expect to recognize revenue on approximately 49% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter. During the three months ended September 30, 2019, we recognized revenue of $34.3 million from contract liabilities existing at the beginning of the period.

Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.

Lease Accounting

Right of use (“ROU”) assets represent our right to use an underlying asset during the reasonably certain lease terms and lease liabilities represent our obligation to make lease payments arising from the leases. We recognize ROU lease assets and lease liabilities at lease commencement on our consolidated balance sheet based on the present value of lease payments over the lease term using a discount rate determined based on our incremental borrowing rate since the rate implicit in each lease is not readily determinable. We elected the package of practical expedients, which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component. We also elected the hindsight practical expedient, which allows us to use hindsight in determining the lease term. We do not record an ROU asset and corresponding lease liability for leases with an initial term of 12 months or less (“short-term leases”). The terms in our leases may include options to extend or terminate the lease. We recognize ROU assets and liabilities when it is reasonably certain that we will exercise those options. Judgment is required in our assessment as to whether renewal or termination options are reasonably certain to be exercised and factors such as contractual terms compared to current market rates, the importance of the facility and location to our operations, among others, are considered. Lease payments are made in accordance with the lease terms and lease expense, including short-term lease expense, is recognized on a straight-line basis over the lease term.

We lease facilities and certain equipment under various operating lease agreements. The majority of our lease arrangements are comprised of fixed payments while certain of our leases provide for periodic rent increases. Our leases may contain escalation clauses and renewal options. Most of the leases require us to pay for certain other costs such as common area maintenance and property taxes. Rent expense for leases with periodic rent increases or escalation clauses is recognized on a straight-line basis over the minimum lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. We also have finance leases for fleet vehicles that are not material to the condensed consolidated financial statements.

The components of operating lease expense were as follows (in thousands):


	Three Months Ended
	September 30, 2019
Operating lease cost	$	2,649
Variable lease cost		138
Short-term lease cost		209
	$	2,996

Supplemental balance sheet assets and liabilities related to operating leases were as follows (in thousands):


	Balance Sheet Category	September 30, 2019
Operating lease ROU assets, net	Other assets	$	28,849

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	8,355
Operating lease liabilities, long-term	Other long-term liabilities		20,750
Total operating lease liabilities		$	29,105

Weighted average remaining lease term			4.6 years
Weighted average discount rate			4.3%

Supplemental cash flow information related to operating leases was as follows (in thousands):


	Three Months Ended
	September 30, 2019
Cash paid for operating lease liabilities	$	2,572
ROU assets obtained in exchange for new lease obligations		1,313

Maturities of operating lease liabilities under ASC 842 (defined below) at September 30, 2019 were as follows (in thousands):


	September 30, 2019
Less than one year	$	9,361
1 – 2 years		7,527
2 – 3 years		5,050
3 – 4 years		3,338
4 – 5 years		2,775
Thereafter		4,095
		32,146
Less: Imputed interest		(3,041)
Total lease liabilities	$	29,105

Maturities of minimum operating lease liabilities under non-cancelable leases under ASC 840 (defined below) at June 30, 2019 were as follows (in thousands):


	June 30, 2019
Less than one year	$	9,802
1 – 2 years		8,082
2 – 3 years		5,473
3 – 4 years		3,397
4 – 5 years		2,954
Thereafter		4,583
Total lease liabilities	$	34,291

Recently Adopted Accounting Pronouncement

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”), which requires lessees to recognize ROU assets and lease liabilities, initially measured at present value of the lease payments, on its balance sheet for leases and classified as either financing or operating leases. We adopted ASC 842 on July 1, 2019, using the modified retrospective method, and we elected the package of practical expedients provided in ASC 842. In accordance with ASC 842, we did not restate comparative periods and instead reported comparative prior year periods under ASC 840, “Leases.”

The cumulative effect of the changes made to our July 1, 2019 consolidated condensed balance sheet for the adoption of the new lease standard was as follows (in thousands):


	Balance at		Effect of Adoption		Balance at
Balance Sheet	June 30, 2019		of ASC 842		July 1, 2019
Assets
Other assets	$	56,518	$	30,066	$	86,584
Liabilities
Other accrued expenses and current liabilities	$	112,956	$	8,324	$	121,280
Other long-term liabilities		65,398		21,742		87,140

The adoption of the new lease accounting guidance did not have a material impact to the condensed consolidated statement of operations or the condensed consolidated statement of cash flows for the three months ended September 30, 2019.

Recently Issued Accounting Pronouncements Not Yet Adopted

Retirement Benefit Plans

In August 2018, the FASB issued authoritative guidance under ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of the adoption of this guidance on our consolidated financial statements.

Intangibles

In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements.

Business Combinations

3 Months Ended

Sep. 30, 2019

Business Combinations

Business Combinations

2. Business Combinations

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

Fiscal Year 2020 Business Acquisition

There were no acquisitions during the three months ended September 30,2019.

Fiscal Year 2019 Business Acquisitions

In January 2019, we (through our Security division) completed an acquisition of a privately held sales and services company. The acquisition was financed with cash on hand and was in an amount determined to be insignificant by management.

In August 2018, we (through our Security division) completed an acquisition of a privately held services company for approximately $0.8 million, plus up to approximately $5 million in contingent consideration, which may be earned over a five-year period. The acquisition was financed with cash on hand. The goodwill recognized for this business is not expected to be deductible for income tax purposes.

In July 2018, we (through our Optoelectronics and Manufacturing division) acquired an optoelectronics solutions business for $17.5 million, plus up to $1 million in potential contingent consideration, which may be earned after the completion of an 18-month period. The acquisition was financed with cash on hand and borrowings under our existing revolving bank line of credit. The goodwill recognized for this business is expected to be deductible for income tax purposes.

These business acquisitions, individually and in the aggregate, were not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations related to these businesses have not been presented.

Balance Sheet Details

3 Months Ended

Sep. 30, 2019

Balance Sheet Details

Balance Sheet Details

3. Balance Sheet Details

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


	June 30,		September 30,
Accounts receivable, net	2019		2019
Accounts receivable	$	253,504	$	259,383
Less allowance for doubtful accounts		(15,064)		(14,290)
Total	$	238,440	$	245,093

	June 30,		September 30,
Inventories	2019		2019
Raw materials	$	143,697	$	145,087
Work-in-process		67,897		75,499
Finished goods		62,117		48,175
Total	$	273,711	$	268,761


	June 30,		September 30,
Property and equipment, net	2019		2019
Land	$	16,564	$	16,558
Buildings, civil works and improvements		55,391		55,461
Leasehold improvements		8,311		8,459
Equipment and tooling		128,428		129,055
Furniture and fixtures		3,190		2,986
Computer equipment		18,733		18,814
Computer software		20,146		20,289
Computer software implementation in process		8,563		9,314
Construction in process		5,760		7,473
Total		265,086		268,409
Less accumulated depreciation and amortization		(137,701)		(140,116)
Property and equipment, net	$	127,385	$	128,293

Depreciation and amortization expense for property and equipment was $5.1 million for each of the three months ended September 30, 2018 and 2019.

Goodwill and Intangible Assets

3 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets

Goodwill and Intangible Assets

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three month period ended September 30, 2019 were as follows (in thousands):


					Optoelectronics
					and
	Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated
Balance as of June 30, 2019	$	200,079	$	40,064	$	66,965	$	307,108
Goodwill adjusted during the period		483		—		—		483
Foreign currency translation adjustment		(254)		(78)		(546)		(878)
Balance as of September 30, 2019	$	200,308	$	39,986	$	66,419	$	306,713

Intangible assets consisted of the following (in thousands):


		June 30, 2019						September 30, 2019
	Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8 years	$	29,393	$	(12,747)	$	16,646	$	30,740	$	(13,992)	$	16,748
Patents	19 years		8,688		(1,927)		6,761		9,104		(2,033)		7,071
Developed technology	10 years		53,460		(14,050)		39,410		53,443		(15,412)		38,031
Customer relationships/backlog	7 years		63,101		(22,132)		40,969		62,484		(23,862)		38,622
Total amortizable assets			154,642		(50,856)		103,786		155,771		(55,299)		100,472
Non-amortizable assets:
IPR&D			2,290		—		2,290		2,290		—		2,290
Trademarks			26,878		—		26,878		26,871		—		26,871
Total intangible assets		$	183,810	$	(50,856)	$	132,954	$	184,932	$	(55,299)	$	129,633

Amortization expense related to intangible assets was $5.3 million and $4.9 million for the three months ended September 30, 2018 and 2019, respectively.

At September 30, 2019, the estimated future amortization expense for intangible assets was as follows (in thousands):


2020 (remaining 9 months)	$	15,523
2021		19,009
2022		15,142
2023		14,001
2024		12,947
Thereafter, including assets that have not yet begun to be amortized		23,850
Total	$	100,472

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 September 30, 2018 and 2019, we capitalized software development costs in the amount of $0.4 million and $1.3 million, respectively.

Restructuring and Other Charges

3 Months Ended

Sep. 30, 2019

Restructuring and Other Charges

Restructuring and Other Charges

5. Restructuring and Other Charges

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

During the quarter ended September 30, 2018, we incurred $3.6 million in legal fees in our Corporate division related to class action litigation and government investigations. Additionally, we incurred costs related to acquisitions completed during the quarter and as a result of employee terminations.

During the quarter ended September 30, 2019, we recognized a net benefit of $2.1 million primarily related to reimbursements from our insurance carriers for covered legal charges, partially offset by additional legal fees related to class action litigation and government investigations.

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


	Three Months Ended September 30, 2018
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Acquisition-related costs	$	—	$	—	$	267	$	—	$	267
Employee termination costs		35		191		107		—		333
Facility closures/consolidation		10		—		—		—		10
Legal costs		—		—		—		3,586		3,586
Total expensed	$	45	$	191	$	374	$	3,586	$	4,196


	Three Months Ended September 30, 2019
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Employee termination costs (benefit)	$	—	$	—	$	(13)	$	71	$	58
Legal costs (benefit), net		—		—		—		(2,157)		(2,157)
Total benefit	$	—	$	—	$	(13)	$	(2,086)	$	(2,099)

The changes in the accrued liability for restructuring and other charges for the three month period ended September 30, 2019 were as follows (in thousands):



	Employee
	Termination		Legal Costs and
	Costs		Settlements		Total
Balance as of June 30, 2019	$	432	$	6,331	$	6,763
Restructuring and other charges (benefit), net		58		(2,157)		(2,099)
(Payments), adjustments and reimbursements, net		(490)		1,417		927
Balance as of September 30, 2019	$	—	$	5,591	$	5,591

Borrowings

3 Months Ended

Sep. 30, 2019

Borrowings

Borrowings

6. Borrowings

Revolving Credit Facility

Under our revolving credit facility, the aggregate committed amount available to us is $535 million. The credit facility matures in April 2024. 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 1.0% as of September 30, 2019 (which margin can range from 1.0% to 1.75% based on our consolidated net leverage ratio as defined in the credit facility). The LIBOR index is expected to be discontinued by the end of calendar year 2021. Under our credit facility, if the LIBOR index is discontinued, the terms of our revolving credit facility allow for a replacement rate to be determined in accordance with the Agreement. Letters of credit reduce the amount available to borrow by their face value. The unused portion of the facility bears a commitment fee of 0.10% as of September 30, 2019 (which fee can range from 0.10% to 0.25% 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 assets and substantially all the assets of certain of our subsidiaries. The agreement contains various representations and warranties, affirmative, negative and financial covenants and conditions of default. As of September 30, 2019, there was $95.0 million of borrowings outstanding under the revolving credit facility and $49.4 million outstanding under the letters of credit sub facility. The amount available to borrow under the credit facility as of September 30, 2019 was $390.6 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 September 30, 2019, 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. Since the last reported sales price of our Common Stock did not exceed 130% of the conversion price for at least 20 trading days within any applicable period of 30 consecutive trading days during the three months ended September 30, 2019, the Notes are not yet 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 ended September 30, 2019 related to the Notes was $3.2 million, which consisted of $0.9 million of contractual interest expense, $2.0 million of debt discount amortization and $0.3 million of amortization of debt issuance costs. For the three months ended September 30, 2018, the total interest expense was $3.1 million, which consisted of $0.9 million of contractual interest expense, $1.9 million of debt discount amortization and $0.3 million of amortization of debt issuance costs. As of June 30, 2019 and September 30, 2019, the unamortized debt discount was $27.3 million and $25.3 million, respectively, 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 $3.7 million and $3.4 million as of June 30, 2019 and September 30, 2019, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes.

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 September 30, 2019, $44.2 million was outstanding under these letter-of-credit facilities. As of September 30, 2019, the total amount available under these credit facilities was $20.9 million.

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


	June 30,		September 30,
	2019		2019
1.25% convertible notes due 2022:
Principal amount	$	287,500	$	287,500
Unamortized discount		(27,283)		(25,268)
Unamortized debt issuance costs		(3,722)		(3,428)
		256,495		258,804
Other long-term debt		2,061		2,004
		258,556		260,808
Less current portion of long-term debt		(804)		(801)
Long-term portion of debt	$	257,752	$	260,007

Stockholders' Equity

3 Months Ended

Sep. 30, 2019

Stockholders' Equity

Stockholders' Equity

7. Stockholders’ Equity

Stock-based Compensation

As of September 30, 2019, we maintained the Amended and Restated 2012 Incentive Award Plan (the "2012 Plan ") and the Amended and Restated 2006 Equity Participation Plan ("2006 Plan") as stock-based employee compensation plans. No further grants may be made under the 2006 Plan. The 2012 Plan and the 2006 Plan are collectively referred to as the "OSI Plans."

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


	Three Months Ended September 30,
	2018		2019
Cost of goods sold	$	207	$	171
Selling, general and administrative		5,111		6,085
Research and development		145		160
Stock-based compensation expense	$	5,463	$	6,416

As of September 30, 2019, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $0.4 million for stock options and $28.2 million for RSUs. We expect to recognize these costs over a weighted average period of 1.7 years with respect to the stock options and 1.7 years for grants of RSUs.

The following summarizes stock option activity during the three months ended September 30, 2019:


		Weighted Average		Weighted-Average	Aggregate
	Number of	Exercise		Remaining Contractual	Intrinsic Value
	Options	Price		Term	(in thousands)
Outstanding at June 30, 2019	515,884	$	33.74
Granted	—		—
Exercised	(167,306)		16.92
Expired or forfeited	—		—
Outstanding at September 30, 2019	348,578		41.81	2.8 years	$	20,829
Exercisable at September 30, 2019	314,261		37.82	2.2 years		20,030

The following summarizes RSU award activity during the three months ended September 30, 2019:


		Weighted-
		Average
	Shares	Fair Value
Nonvested at June 30, 2019	521,140	$	73.97
Granted	272,489		86.98
Vested	(360,866)		68.11
Forfeited	(4,041)		77.57
Nonvested at September 30, 2019	428,722		87.14

As of September 30, 2019, there were approximately 1.1 million shares available for grant under the 2012 Plan. Under the terms of the 2012 Plan, RSUs and restricted stock granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted. RSUs and restricted stock forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited.

We granted 96,151 and 80,326 performance-based RSUs during the three months ended September 30, 2018 and 2019, respectively. These performance based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from zero to 280% of the original number of shares or units awarded.

Stock Repurchase Program

In March 2018, the Board of Directors authorized a stock repurchase program of up to 1,000,000 shares. 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.

During the three months ended September 30, 2019, we repurchased 126,051 shares of our common stock. As of September 30, 2019, 436,656 shares were available for additional repurchase under the current stock repurchase program.

Dividends

We have not paid any cash dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any cash dividends in the foreseeable future. Our Board of Directors will determine the payment of future cash dividends, if any. Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions.