Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Sep. 30, 2016 | Oct. 27, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | OSI SYSTEMS INC | |
Entity Central Index Key | 1,039,065 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
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 | 19,064,008 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 122,966 | $ 104,370 |
Accounts receivable, net | 177,857 | 141,716 |
Inventories | 289,601 | 273,288 |
Prepaid expenses and other current assets | 45,757 | 35,944 |
Total current assets | 636,181 | 555,318 |
Property and equipment, net | 178,830 | 183,114 |
Goodwill | 242,590 | 122,819 |
Intangible assets, net | 129,349 | 56,283 |
Deferred income taxes | 33,921 | 43,474 |
Other assets | 32,142 | 30,715 |
Total assets | 1,253,013 | 991,723 |
CURRENT LIABILITIES: | ||
Bank lines of credit | 339,000 | 125,000 |
Current portion of long-term debt | 2,681 | 2,759 |
Accounts payable | 66,129 | 69,490 |
Accrued payroll and related expenses | 28,458 | 29,203 |
Advances from customers | 61,016 | 55,408 |
Deferred revenue | 36,468 | 29,978 |
Other accrued expenses and current liabilities | 67,596 | 55,997 |
Total current liabilities | 601,348 | 367,835 |
Long-term debt | 5,623 | 6,054 |
Deferred income taxes | 29,123 | 29,160 |
Other long-term liabilities | 70,212 | 47,828 |
Total liabilities | 706,306 | 450,877 |
Commitments and contingencies (Note 9) | ||
Stockholders' Equity: | ||
Preferred stock, $0.001 par value-authorized, 10,000,000 shares; no shares issued or outstanding | ||
Common stock, $0.001 par value - authorized, 100,000,000 shares; issued and outstanding, 18,912,157 shares at June 30, 2016 and 18,924,189 shares at September 30, 2016 | 225,020 | 219,114 |
Retained earnings | 339,665 | 338,988 |
Accumulated other comprehensive loss | (17,978) | (17,256) |
Total stockholders' equity | 546,707 | 540,846 |
Total liabilities and stockholders' equity | $ 1,253,013 | $ 991,723 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2016 | Jun. 30, 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
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 | 18,924,189 | 18,912,157 |
Common stock, shares outstanding | 18,924,189 | 18,912,157 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Net revenues: | ||
Products | $ 153,457 | $ 135,501 |
Services | 67,398 | 64,549 |
Total net revenues | 220,855 | 200,050 |
Cost of goods sold: | ||
Products | 113,121 | 94,317 |
Services | 39,647 | 37,762 |
Total cost of goods sold | 152,768 | 132,079 |
Gross profit | 68,087 | 67,971 |
Operating expenses: | ||
Selling, general and administrative | 43,553 | 40,393 |
Research and development | 12,478 | 11,881 |
Impairment, restructuring and other charges | 9,957 | |
Total operating expenses | 65,988 | 52,274 |
Income from operations | 2,099 | 15,697 |
Interest and other expense, net | (1,158) | (794) |
Income before income taxes | 941 | 14,903 |
Provision for income taxes | 264 | 4,098 |
Net income | $ 677 | $ 10,805 |
Earnings per share: | ||
Basic (in dollars per share) | $ 0.04 | $ 0.55 |
Diluted (in dollars per share) | $ 0.03 | $ 0.53 |
Shares used in per share calculation: | ||
Basic (in shares) | 18,943 | 19,734 |
Diluted (in shares) | 19,591 | 20,474 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||
Net income | $ 677 | $ 10,805 |
Other comprehensive income (loss): | ||
Foreign currency translation adjustment | (801) | (1,628) |
Other | 79 | (21) |
Other comprehensive loss | (722) | (1,649) |
Comprehensive income (loss) | $ (45) | $ 9,156 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net income | $ 677 | $ 10,805 |
Adjustments to reconcile net income to cash flows from operating activities: | ||
Depreciation and amortization | 15,426 | 14,063 |
Stock based compensation expense | 5,830 | 4,465 |
Impairment charges | 5,418 | |
Other | 258 | (295) |
Changes in operating assets and liabilities-net of business acquisitions: | ||
Accounts receivable | (11,412) | 13,467 |
Inventories | 10,901 | (23,575) |
Accounts payable | (8,791) | 23,933 |
Accrued payroll and related expenses | (5,251) | (3,448) |
Advances from customers | (10,469) | (5,189) |
Deferred revenue | (4,827) | (5,390) |
Other | 382 | (4,024) |
Net cash provided by (used in) operating activities | (1,858) | 24,812 |
Cash flows from investing activities: | ||
Acquisition of property and equipment | (2,806) | (2,503) |
Acquisition of businesses, net of cash acquired | (186,861) | (782) |
Acquisition of intangible and other assets | (1,881) | (958) |
Net cash used in investing activities | (191,548) | (4,243) |
Cash flows from financing activities: | ||
Net borrowings on bank lines of credit | 214,000 | 45,000 |
Proceeds from long-term debt | 233 | 34 |
Payments on long-term debt | (707) | (690) |
Proceeds from exercise of stock options and employee stock purchase plan | 2,099 | 3,067 |
Repurchase of common shares | (2,712) | (21,471) |
Taxes paid related to net share settlement of equity awards | (290) | (13,049) |
Net cash provided by financing activities | 212,623 | 12,891 |
Effect of exchange rate changes on cash | (621) | (123) |
Net increase in cash and cash equivalents | 18,596 | 33,337 |
Cash and cash equivalents-beginning of period | 104,370 | 47,593 |
Cash and cash equivalents-end of period | 122,966 | 80,930 |
Supplemental disclosure of cash flow information: | ||
Interest | 956 | 305 |
Income taxes | $ 6,022 | $ 5,221 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Sep. 30, 2016 | |
Basis of Presentation | |
Basis of Presentation | 1. Basis of Presentation Description of Business OSI Systems, Inc., together with its subsidiaries (the “Company”), is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The Company sells its products in diversified markets, including homeland security, healthcare, defense and aerospace. The Company has three reporting segments: (i) Security, providing security inspection systems, turnkey security screening solutions and related services; (ii) Healthcare, providing patient monitoring, diagnostic cardiology, anesthesia and ventilation systems and defibrillators, and related services and (iii) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for the 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 its Security division, the Company provides security screening products and related services globally. 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, the Company provides site design, installation, training and technical support services to its customers. The Company also provides turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening checkpoints for its customers. Through its Healthcare division, the Company designs, manufactures, markets and services patient monitoring, diagnostic cardiology, anesthesia delivery and ventilation systems and defibrillator products and related supplies and accessories globally. These products are used by care providers in critical care, emergency and perioperative areas in hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers, among others. The defibrillators are also used in public facilities. Through its Optoelectronics and Manufacturing division, the Company designs, manufactures and markets optoelectronic devices and provides electronics manufacturing services worldwide for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostic products, telecommunications, computer peripherals, industrial automation systems, automotive diagnostic systems, gaming systems and consumer products. This division provides products and services to OEM customers and end users, as well as to the Company’s own Security and Healthcare divisions. Basis of Presentation The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and its 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 the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of the operating results to be expected for the full 2017 fiscal year or any future periods. Use of Estimates The preparation of financial statements in accordance 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 the 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 market, stock-based compensation expense, income taxes, accrued product warranty costs, and the 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 differ from these estimates and could differ materially. Per Share Computations The Company computes basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. The Company computes 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 or unit awards under the treasury stock method. Stock options and stock awards to purchase 0.1 million shares of common stock for each of the three months ended September 30, 2015 and September 30, 2016 were excluded from the calculation because to include such options and awards would have been antidilutive. 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, 2015 2016 Net income available to common stockholders $ $ Weighted average shares outstanding—basic Dilutive effect of equity awards Weighted average shares outstanding—diluted Basic earnings per share $ $ Diluted earnings per share $ $ Cash Equivalents The Company considers all highly liquid investments purchased with maturities of approximately three months or less as of the acquisition date to be cash equivalents. Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash, 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 the Company’s 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 the Company. Fair value is the price that would be received upon sale of an asset or paid upon transfer a liability in an orderly transaction between market participants at the measurement date. “Level 1” category includes assets and liabilities at the 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 whose 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, the Company’s contingent payment obligations related to acquisitions are valued using “Level 3” valuation techniques. Such obligations are measured at fair value on a recurring basis. The fair values of the Company’s financial assets and liabilities as of June 30, 2016 and September 30, 2016 are categorized as follows (in thousands): June 30, 2016 September 30, 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Equity securities $ $ — $ — $ $ $ — $ — $ Insurance company contracts — — — — Interest rate contract — ) — ) — ) — ) Total assets $ $ $ — $ $ $ $ — $ Liabilities—Contingent payment obligations $ — $ — $ $ $ — $ — $ $ Derivative Instruments and Hedging Activity The Company’s 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 the Company’s variable, LIBOR-based term loan. The interest rate swap matures in October 2019, which aligns with the maturity of the term loan. The interest rate swap is considered an effective cash flow hedge, and, as a result, the net gains or losses from the periodic fair market revaluation of such instrument were reported as a component of Other comprehensive income (loss) in the condensed consolidated financial statements and are reclassified to interest expense when the hedge transaction settles. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are charged while assets are used in service and are generally computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value. Amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term. Leased capital assets are included in property and equipment. Amortization of property and equipment under capital leases is included with depreciation expense. In the event that property and equipment are idle, as a result of excess capacity or the early termination, non-renewal or reduction in scope of a turnkey screening operation, such assets are assessed for impairment on a periodic basis. Certain fixed assets related to the Company’s turnkey security screening program in Mexico are not currently in use. As of September 30, 2016, the net value of these assets is approximately $15 million, which amount is included in property and equipment in the condensed consolidated balance sheet. Revenue Recognition The Company recognizes revenue from sales of products upon shipment when title and risk of loss passes, and when terms are fixed and collection is probable. 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. The portion of revenue for a sale attributable to installation is deferred and recognized when the installation service is provided completed. In an instance where terms of sale include subjective customer acceptance criteria, revenue is deferred until the Company has achieved the acceptance criteria, unless customer acceptance terms are perfunctory or inconsequential. Concurrent with the revenue recognition, the Company accrues reserves for estimated product return and warranty costs. Critical judgments made by management related to revenue recognition include the determination of 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. In instances where a contract calls for multiple deliverables and such deliverables constitute separate units of accounting, the Company may recognize revenue based on the value of the respective deliverables identified in the underlying contract. In connection with the agreement with the Servicio de Administración Tributaria (“SAT”) in Mexico, revenue is 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 is reflected in the period during which the change becomes known. In the SAT agreement, customer billings may be 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 exceed revenue recognition, deferred revenue is recorded. Revenues from out-of-warranty service maintenance contracts are recognized ratably over the term of such contracts. For services not derived from specific maintenance contracts, revenues are recognized as the services are performed. Deferred revenue for such services arises from payments received from customers for services not yet performed. On occasion, the Company receives advances from customers that are amortized against future customer payments pursuant to the underlying agreements. Such advances are classified in the condensed consolidated balance sheets as either current liabilities or long-term liabilities depending on when the Company estimates the corresponding amortization to occur. Recent Accounting Updates 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. Earlier adoption is permitted only for fiscal years beginning after December 15, 2016, including interim reporting periods within such fiscal years. In May 2016, FASB issued a narrow scope improvement, specifically to clarify two aspects - identifying performance obligations and licensing implementation guidance, to this ASU. The Company has not yet selected a transition method and is currently evaluating the impact this ASU may have on its results of operations. In July 2015, FASB issued an ASU amending some of the guidance on subsequent measurement of inventory. This ASU affects companies that are using first-in, first-out or average cost, or any other methods besides last-in, first out or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016, including interim reporting periods within that reporting period. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. 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, and interim periods within such fiscal year. Early application is permitted. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. In February 2016, the FASB issued an ASU which affects the accounting for leases. The ASU 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 fiscal years beginning after December 15, 2018, and interim periods within such fiscal years. Early adoption is permitted. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. In March 2016, the FASB issued an ASU relating to employee share-based payment accounting. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within such fiscal years. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its 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 the cash flow statement. This ASU addresses eight specific cash flow issues to reduce diversity in practice. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within such fiscal years. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. |
Business Combinations
Business Combinations | 3 Months Ended |
Sep. 30, 2016 | |
Business Combinations | |
Business Combinations | 2 . Business Combinations Under ASU 805, the acquisition method of accounting requires the Company to record assets acquired and liabilities assumed from an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price of over the estimated fair value of the net assets acquired 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, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. On September 9, 2016, the Company acquired by merger 100 percent ownership interest 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 the Company’s Security division. The Company financed the total estimated purchase price of $266 million with a combination of cash on hand and borrowing under its existing revolving bank line of credit, as well as the issuance of Company restricted stock units (“RSUs”) to replace RSUs previously issued by AS&E. The Company has estimated that $1.4 million of the fair value of these replacement Company RSU awards pertain to the precombination service period, and therefore, this amount has been included in the total estimated purchase price. Immediately following the close of the acquisition, the Company used $69 million of AS&E’s existing cash on hand to pay down the revolving bank line of credit. The Company is in the process of finalizing its valuation of all the assets acquired and liabilities assumed. As the amounts recorded for certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date. The final determination of fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date as permitted under GAAP. The AS&E acquisition could necessitate the use of the full one year measurement period to adequately analyze and assess a number of factors used in establishing the asset and liability fair values as of the acquisition date, including receivables, inventory, deferred revenue, property and equipment, contractual obligations, income tax obligations, and certain reserves. Any potential adjustments made could be material in relation to these preliminary values. The following is a preliminary estimate of the assets acquired and the liabilities assumed by OSI Systems in the acquisition, reconciled to total estimated purchase consideration (in thousands): Cash and cash equivalents $ Accounts receivable Inventories Other current assets Property and equipment Intangible assets Other long-term assets Accounts payable ) Accrued payroll and related expenses ) Deferred revenues — current ) Advances from customers ) Other accrued expenses and current liabilities ) Deferred revenues - long term ) Deferred income tax liability ) Other long-term liabilities ) Net assets acquired Goodwill Total consideration $ The goodwill is largely attributable to expected synergies between the Company and AS&E and the assembled workforce of AS&E. Intangible assets are recorded at estimated fair value, as determined by management based on available information, which includes a preliminary valuation prepared by an independent third party. The fair value attributed to the intangible assets acquired was based on preliminary estimates, assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques. The value attributed to goodwill and intangible assets is not 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 Gross Average Carrying Lives Value Amortizable assets: Developed technology 10 years $ Customer relationships/backlog 7 years Total amortizable assets Non-amortizable assets: Trademarks and trade names IPR&D Total intangible assets $ The condensed consolidated statements of operations include $14.2 million of revenue and $2.8 million of pre-tax income from AS&E for the period from September 10, 2016 to September 30, 2016. The following pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the 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 AS&E acquisition had occurred on July 1, 2015 (in thousands): Three Months Ended 2015 2016 Revenues $ $ Income (loss) before taxes $ $ ) Significant pro forma adjustments incorporated into the pro forma results above include the recognition of additional amortization expense related to acquired intangible assets and additional interest expense related to debt incurred to finance the acquisition. In addition, significant non-recurring adjustments include the elimination of non-recurring acquisition-related expenses incurred during the three months ended September 30, 2016. Other Acquisitions The Company also completed an acquisition that was determined to be immaterial by management during the three months ended September 30, 2016. |
Balance Sheet Details
Balance Sheet Details | 3 Months Ended |
Sep. 30, 2016 | |
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, 2016 2016 Accounts receivable $ $ Less allowance for doubtful accounts ) ) Total $ $ June 30, September 30, 2016 2016 Raw materials $ $ Work-in-process Finished goods Total $ $ Estimated Useful June 30, September 30, Lives 2016 2016 Land N/A $ $ Buildings, civil works and improvements 20 - 40 years Leasehold improvements 1 - 12 years Equipment and tooling 3 - 10 years Furniture and fixtures 3 - 13 years Computer equipment 3 - 5 years Computer software 3 - 10 years Construction in process N/A Total Less accumulated depreciation and amortization ) ) Property and equipment, net $ $ Depreciation expense was $13.0 million and $13.3 million for the three months ended September 30, 2015 and 2016, respectively. |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | 3 Months Ended |
Sep. 30, 2016 | |
Goodwill and Intangible Assets | |
Goodwill and Intangible Assets | 4. Goodwill and Intangible Assets The changes in the carrying value of goodwill for the three month period ended September 30, 2016 are as follows (in thousands): Optoelectronics and Security Healthcare Manufacturing Division Division Division Consolidated Balance as of June 30, 2016 $ $ $ $ Goodwill acquired or adjusted during the period — — Foreign currency translation adjustment ) ) Balance as of September 30, 2016 $ $ $ $ Intangible assets consisted of the following (in thousands): June 30, 2016 September 30, 2016 Weighted Gross Gross Average Carrying Accumulated Intangibles Carrying Accumulated Intangibles Lives Value Amortization Net Value Amortization Net Amortizable assets: Software development costs 9 years $ $ $ $ $ $ Patents 20 years Developed technology 10 years Customer relationships/backlog 7 years Total amortizable assets Non-amortizable assets: Trademarks and trade names — — IPR&D — — — — Total intangible assets $ $ $ $ $ $ Amortization expense related to intangible assets was $1.1 million and $2.1 million for the three months ended September 30, 2015 and 2016, respectively. At September 30, 2016, the estimated future amortization expense was as follows (in thousands): 2017 (remaining 9 months) $ 2018 2019 2020 2021 2022 2023 and thereafter, including assets that have not yet begun to be amortized Total $ 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, 2015 and 2016, the Company capitalized software development costs in the amount of $0.4 million and $1.4 million, respectively. |
Impairment, Restructuring and O
Impairment, Restructuring and Other Charges | 3 Months Ended |
Sep. 30, 2016 | |
Impairment, Restructuring and Other Charges | |
Impairment, Restructuring and Other Charges | 5. Impairment, Restructuring and Other Charges During the three months ended September 30, 2016, the Company determined that certain assets will not be used and were permanently impaired. In addition, the Company accounts for certain charges related to restructuring activities, litigation, acquisition-related costs and other non-routine charges as Impairment, restructuring and other charges in the condensed consolidated financial statements. The following table summarizes the impairment, restructuring and other charges (in thousands): Three Months Ended 2015 2016 Impairment of assets $ — $ Restructuring and other charges: Acquisition-related costs — Facility closure / consolidation — Employee termination — Other — Total impairment, restructuring and other charges $ — $ |
Borrowings
Borrowings | 3 Months Ended |
Sep. 30, 2016 | |
Borrowings | |
Borrowings | 6. Borrowings The Company has a $450 million revolving credit facility maturing in May 2019. The credit facility includes a $375 million sub-limit for letters of credit. The Company has the ability to increase the facility by up to $200 million under certain circumstances. Borrowings under this facility bear interest at LIBOR plus a margin of 1.25% as of September 30, 2016, but this margin can range from 1.25% to 2.0% based on the Company’s consolidated leverage ratio. 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 September 30, 2016, but this fee can range from 0.20% to 0.35% based on the Company’s consolidated leverage ratio. Due to increased borrowings under this facility as a result of the acquisition of AS&E, the borrowing margin and the commitment fee are scheduled to increase to 1.75% and 0.30%, respectively, during the second quarter of fiscal 2017. The Company’s borrowings under the credit agreement are guaranteed by certain of the Company’s U.S.-based subsidiaries and are secured by substantially all of the assets of the Company and certain subsidiaries. The agreement contains various representations and warranties, affirmative, negative and financial covenants, and conditions of default customary for financing agreements of this type. As of September 30, 2016, there was $339.0 million outstanding under the revolving credit facility and $33.2 million outstanding under the letters-of-credit sub-facility. As of September 30, 2016, the Company believes that it is in compliance with all related covenants under this credit facility. Several of the Company’s foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, to meet short-term working capital requirements and for the issuance of letters-of-credit. As of September 30, 2016, $38.5 million was outstanding under these letter-of-credit facilities, while no debt was outstanding. As of September 30, 2016, the total amount available under these credit facilities was $16.6 million, with a total cash borrowing sub-limit of $1.3 million. In September 2012, the Company entered into a 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, the Company 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, 2016 September 30, 2016 Term loans $ $ Other long-term debt Less current portion of long-term debt ) ) Long-term portion of debt $ $ |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Sep. 30, 2016 | |
Stockholders' Equity | |
Stockholders' Equity | 7. Stockholders’ Equity Stock-based Compensation As of September 30, 2016, the Company maintained two share-based employee compensation plans: the 2012 Incentive Award Plan (“2012 Plan”) and the Amended and Restated 2006 Equity Participation Plan (“2006 Plan”). Upon stockholder approval of the 2012 Plan, the Company ceased to make grants under the 2006 Plan. In addition, pursuant to the acquisition of AS&E, the Company 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 and the 2014 AS&E Plan. The 2012 Plan, 2006 Plan, 2005 AS&E Plan and the 2014 AS&E Plan are collectively referred to as the “OSI Plans”. The Company recorded stock-based compensation expense in the condensed consolidated statements of operations as follows (in thousands): Three Months Ended September 30, 2015 2016 Cost of goods sold $ $ Selling, general and administrative Research and development Stock based compensation expense Less: Related income tax benefit ) ) Stock based compensation expense, net $ $ As of September 30, 2016, total unrecognized compensation cost related to share-based compensation grants were estimated at $0.6 million for stock options and $29.9 million for restricted stock and restricted stock units (“RSUs”) under the OSI Plans. The Company expects to recognize these costs over a weighted-average period of 1.8 years. The following summarizes stock option activity during the three months ended September 30, 2016: Weighted Average Weighted-Average Aggregate Number of Exercise Remaining Contractual Intrinsic Value Options Price Term (in thousands) Outstanding at June 30, 2016 $ Granted $ Exercised ) $ Expired or forfeited ) $ Outstanding at September 30, 2016 $ 3.7 years $ Exercisable at September 30, 2016 $ 3.5 years $ The following summarizes restricted stock and RSU award activity during the three months ended September 30, 2016: Weighted- Average Shares Fair Value Nonvested at June 30, 2016 $ Granted $ Vested ) $ Replacement RSUs(1) $ Forfeited ) $ Nonvested at September 30, 2016 $ Note 1 – Pursuant to the acquisition of AS&E, the Company assumed unvested RSUs originally granted by AS&E and converted them into RSUs for the Company’s common stock. As of September 30, 2016, there were approximately 1.7 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. The Company granted 139,300 and 155,488 performance-based RSUs during the three months ended September 30, 2015 and 2016, respectively. These performance-based RSUs are contingent on the achievement of certain performance metrics. The payout can range from zero to 250% of the original number of shares or units awarded. Share Repurchase Program In March 1999, the Board of Directors authorized a stock repurchase program of up to 2 million shares. In each of September 2004 and April 2013, the Board of Directors authorized an additional 1 million shares for repurchase pursuant to this program, and in October 2015, the Board of Directors authorized an additional 500,000 shares for repurchase pursuant to this program. In April 2016, the Board of Directors authorized a new stock repurchase program of up to one million shares. As of September 30, 2016, there were 1,020,763 of available shares that may be repurchased under these programs. These programs do not have expiration dates. Upon repurchase, the shares are restored to the status of authorized but unissued, and the Company records them as a reduction in the number of shares of common stock issued and outstanding in the consolidated financial statements. |
Retirement Benefit Plans
Retirement Benefit Plans | 3 Months Ended |
Sep. 30, 2016 | |
Retirement Benefit Plans | |
Retirement Benefit Plans | 8. Retirement Benefit Plans The Company sponsors various retirement benefit plans including qualified and nonqualified defined benefit pension plans for its employees. The components of net periodic pension expense are as follows (in thousands): Three Months Ended September 30, 2015 2016 Service cost $ $ Interest cost Amortization of prior service cost Net periodic pension expense $ $ For the three months ended September 30, 2015 and 2016, the Company made no contributions to these defined benefit plans. In addition, the Company maintains various defined contribution plans. For the three months ended September 30, 2015 and 2016, the Company made contributions of $1.1 and $1.2 million, respectively, to these defined contribution plans. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9. Commitments and Contingencies Contingent Acquisition Obligations Under the terms and conditions of the purchase agreements associated with certain acquisitions, the Company may be obligated to make additional payments based on the achievement by the acquired operations of certain sales or profitability milestones. The maximum amount of such future payments under arrangements with contingent consideration caps is $33.2 million as of September 30, 2016. In addition, one of the purchase agreements the Company entered into requires royalty payments through 2022 based on the license of, or sales of products containing, the technology of CXR Limited, a company acquired in 2004. For acquisitions that occurred prior to fiscal year 2010, the Company accounts for such contingent payments as an addition to the purchase price of the acquired business. For acquisitions after fiscal 2009, the estimated fair value of these obligations is recorded as a liability at the time of the acquisition with subsequent revisions recorded in Selling, general and administrative expense in the condensed consolidated financial statements. As of June 30, 2016 and September 30, 2016, $17.1 million of contingent payment obligations are included in Other accrued expenses and current liabilities and Other long-term liabilities in the accompanying condensed consolidated balance sheets. Advances from Customers The Company receives advances from customers associated with certain projects. In fiscal 2012, the Company entered into an agreement with the Mexican government to provide a turnkey security screening solution at various locations throughout the country. Associated with the agreement, the Company was provided an advance totaling $100 million. The Company is obligated to provide a guarantee until the advance has been amortized. As of June 30, 2016 and September 30, 2016, $25.0 million and $18.8 million, respectively, of this advance remains outstanding and is included in Advances from customers. Environmental Contingencies The Company is subject to various environmental laws. The Company’s practice is to conduct appropriate environmental investigations at its manufacturing facilities in North America, Asia-Pacific and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations. In certain cases, the Company has conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants. During one investigation at the Company’s Hawthorne, California facility, the Company discovered soil and groundwater contamination that it believes was the result of unspecified on- and off-site releases occurring prior to the Company’s occupancy. Historical usage of this site includes semiconductor and electronics manufacturing, dating back to the mid-1960s, as well as possible aircraft and related manufacturing dating to the early 1940s. Similar operations, including chemical manufacturing and storage, were conducted at neighboring sites throughout that period and into the 1990s. It is not presently known when the releases occurred or by whom they were caused, though Company records, in conjunction with data obtained from soil and groundwater surveys, support the Company’s assertion that these releases are historical in nature, having occurred prior to the Company’s occupancy. Further, the groundwater contamination is a known regional issue, not limited to the Company’s premises or its immediate surroundings. The Company has filed all requisite reports with the appropriate environmental authorities and continues to cooperate with the local governing agency to develop a complete and accurate characterization of this site. Recent activities include the installation of groundwater monitoring wells, indoor air quality monitoring and additional soil and soil vapor studies. Results from these studies are being evaluated to determine the extent of the on-site releases as well as appropriate and cost-effective remedial action measures. Periodic groundwater monitoring is expected to continue until such time as the governing authority requests further action. The Company has not accrued for loss contingencies relating to the Hawthorne facility or any other environmental matters because it believes that, although unfavorable outcomes may be possible, they are not considered by the Company’s management to be probable and reasonably estimable. If one or more of these environmental matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flow could be material. Indemnifications In the normal course of business, the Company has agreed to indemnify certain parties with respect to certain matters. The Company has agreed to hold certain parties harmless against losses arising from a breach of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company has not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2016. Product Warranties The Company offers its customers warranties on many of the products that it sells. These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment. Concurrent with the sale of products, the Company records a provision for estimated warranty expenses with a corresponding increase in cost of goods sold. The Company periodically adjusts this provision based on historical experience and anticipated expenses. The Company charges actual expenses of repairs under warranty, including parts and labor, to this provision when incurred. The following table presents changes in warranty provisions (in thousands): Three Months Ended September 30, 2015 2016 Balance at beginning of period $ $ Additions and adjustments Reductions for warranty repair costs ) ) Balance at end of period $ $ Legal Proceedings Three shareholder derivative complaints (the “Derivative Actions”) have been filed purportedly on behalf of the Company against the members of the Company’s Board of Directors (as individual defendants). Hagan v. Chopra et al. was filed in the United States District Court for the Central District of California (the “Court”) on April 15, 2014, and was subsequently consolidated by the Court with City of Irving Benefit Plan v. Chopra et al., which was filed on December 29, 2014. Kocen v. Chopra et al. was filed in the Delaware Court of Chancery on July 14, 2015. The Derivative Actions generally assert claims for breach of fiduciary duties and unjust enrichment against the individual defendants on behalf of the Company. Plaintiffs in the Derivative Actions seek unspecified damages, restitution, injunctive relief, attorneys’ and experts’ fees, costs, expenses, and other unspecified relief. Following mediation and post-mediation settlement discussions, the parties to the Derivative Actions reached a settlement and have signed a settlement term sheet, which, if approved, would provide for the resolution of all pending claims in both the California and Delaware actions. The settlement reached includes reimbursement of attorneys’ fees, which is expected to be covered by insurance. The Company and the other defendants agreed to the settlement term sheet to avoid further expense, inconvenience, and the distraction and inherent risks of burdensome and protracted litigation. Neither the Company nor the individual defendants conceded any wrongdoing or liability, and continue to believe that they have meritorious defenses to all claims alleged in the Derivative Actions. The settlement is subject to approval by the Court and certain other conditions. The Company’s recently acquired subsidiary, AS&E, has been the subject of an investigation by the Office of the Inspector General of the U.S. General Services Administration (“GSA”). The investigation relates to AS&E’s discount practices and compliance with the pricing provisions of AS&E’s GSA Schedule contract. The investigation could lead to claims or findings of violations of the False Claims Act in connection with AS&E’s GSA contracting activity. Violations of the False Claims Act could result in the imposition of damages, including up to treble damages, plus civil penalties in some cases, and the Company expects to incur legal costs in connection with the investigation. The Company and AS&E continue to cooperate fully with the investigation and management believes that an appropriate accrual for this uncertainty has been provided in the accompanying condensed consolidated financial statements. The Company is involved in various other claims and legal proceedings arising in the ordinary course of business. In the Company’s opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. The Company has not accrued for loss contingencies relating to these various other claims because it believes that, although unfavorable outcomes in the proceedings may be possible, they are not considered by management to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flow could be material. |
Income Taxes
Income Taxes | 3 Months Ended |
Sep. 30, 2016 | |
Income Taxes | |
Income Taxes | 10. Income Taxes The provision for income taxes is determined using an effective tax rate that is subject to fluctuations during the year as new information is obtained. The assumptions used to estimate the annual effective tax rate include factors such as the mix of pre-tax earnings in the various tax jurisdictions in which the Company operates, valuation allowances against deferred tax assets, increases or decreases in uncertain tax positions, utilization of research and development tax credits, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business and certain tax elections. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities along with net operating loss and tax credit carryovers. The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease in the period such determination is made. |
Segment Information
Segment Information | 3 Months Ended |
Sep. 30, 2016 | |
Segment Information | |
Segment Information | 11. Segment Information The Company has determined that it operates in three identifiable industry segments: (a) security and inspection systems (Security division), (b) medical monitoring and anesthesia systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division). The Company also has a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses; expenses related to stock issuances and legal, audit and other professional service fees not allocated to product segments. Both the Security and Healthcare divisions comprise primarily end-product businesses whereas the businesses of the Optoelectronics and Manufacturing division primarily supply components and subsystems to OEM customers, including to the Security and Healthcare divisions. Sales between divisions are at transfer prices that approximate market values. All other accounting policies of the segments are the same as described in Note 1, Summary of Significant Accounting Policies of the Form 10-K for the fiscal year ended June 30, 2016. The following tables present the operations and identifiable assets by industry segment (in thousands): Three Months Ended September 30, 2015 2016 Revenues (1) — by Segment: Security division $ $ Healthcare division Optoelectronics and Manufacturing division, including intersegment revenues Intersegment revenues elimination ) ) Total $ $ Three Months Ended September 30, 2015 2016 Operating income (loss) — by Segment: Security division $ $ Healthcare division ) Optoelectronics and Manufacturing division Corporate ) ) Eliminations (2) ) Total $ $ June 30, September 30, 2016 2016 Assets (1) — by Segment: Security division $ $ Healthcare division Optoelectronics and Manufacturing division Corporate Eliminations (2) ) ) Total $ $ (1) For the three months ended September 30, 2015 and 2016, one customer, Servicio de Administración Tributaria in Mexico, accounted for 15% and 13% of total net revenues, respectively. No customer accounted for greater than 10% of accounts receivable as of June 30, 2016 and September 30, 2016. (2) Eliminations within operating income primarily reflect the change in the elimination of intercompany profit in inventory not-yet-realized. Eliminations in assets reflect the amount of intercompany profits in inventory as of the balance sheet date. Such intercompany profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 3 Months Ended |
Sep. 30, 2016 | |
Basis of Presentation | |
Description of Business | Description of Business OSI Systems, Inc., together with its subsidiaries (the “Company”), is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The Company sells its products in diversified markets, including homeland security, healthcare, defense and aerospace. The Company has three reporting segments: (i) Security, providing security inspection systems, turnkey security screening solutions and related services; (ii) Healthcare, providing patient monitoring, diagnostic cardiology, anesthesia and ventilation systems and defibrillators, and related services and (iii) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for the 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 its Security division, the Company provides security screening products and related services globally. 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, the Company provides site design, installation, training and technical support services to its customers. The Company also provides turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening checkpoints for its customers. Through its Healthcare division, the Company designs, manufactures, markets and services patient monitoring, diagnostic cardiology, anesthesia delivery and ventilation systems and defibrillator products and related supplies and accessories globally. These products are used by care providers in critical care, emergency and perioperative areas in hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers, among others. The defibrillators are also used in public facilities. Through its Optoelectronics and Manufacturing division, the Company designs, manufactures and markets optoelectronic devices and provides electronics manufacturing services worldwide for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostic products, telecommunications, computer peripherals, industrial automation systems, automotive diagnostic systems, gaming systems and consumer products. This division provides products and services to OEM customers and end users, as well as to the Company’s own Security and Healthcare divisions. |
Basis of Presentation | Basis of Presentation The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and its 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 the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of the operating results to be expected for the full 2017 fiscal year or any future periods. |
Use of Estimates | Use of Estimates The preparation of financial statements in accordance 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 the 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 market, stock-based compensation expense, income taxes, accrued product warranty costs, and the 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 differ from these estimates and could differ materially. |
Per Share Computations | Per Share Computations The Company computes basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. The Company computes 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 or unit awards under the treasury stock method. Stock options and stock awards to purchase 0.1 million shares of common stock for each of the three months ended September 30, 2015 and September 30, 2016 were excluded from the calculation because to include such options and awards would have been antidilutive. 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, 2015 2016 Net income available to common stockholders $ $ Weighted average shares outstanding—basic Dilutive effect of equity awards Weighted average shares outstanding—diluted Basic earnings per share $ $ Diluted earnings per share $ $ |
Cash Equivalents | Cash Equivalents The Company considers all highly liquid investments purchased with maturities of approximately three months or less as of the acquisition date to be cash equivalents. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash, 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 the Company’s 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 the Company. Fair value is the price that would be received upon sale of an asset or paid upon transfer a liability in an orderly transaction between market participants at the measurement date. “Level 1” category includes assets and liabilities at the 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 whose 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, the Company’s contingent payment obligations related to acquisitions are valued using “Level 3” valuation techniques. Such obligations are measured at fair value on a recurring basis. The fair values of the Company’s financial assets and liabilities as of June 30, 2016 and September 30, 2016 are categorized as follows (in thousands): June 30, 2016 September 30, 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Equity securities $ $ — $ — $ $ $ — $ — $ Insurance company contracts — — — — Interest rate contract — ) — ) — ) — ) Total assets $ $ $ — $ $ $ $ — $ Liabilities—Contingent payment obligations $ — $ — $ $ $ — $ — $ $ |
Derivative Instruments and Hedging Activity | Derivative Instruments and Hedging Activity The Company’s 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 the Company’s variable, LIBOR-based term loan. The interest rate swap matures in October 2019, which aligns with the maturity of the term loan. The interest rate swap is considered an effective cash flow hedge, and, as a result, the net gains or losses from the periodic fair market revaluation of such instrument were reported as a component of Other comprehensive income (loss) in the condensed consolidated financial statements and are reclassified to interest expense when the hedge transaction settles. |
Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are charged while assets are used in service and are generally computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value. Amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term. Leased capital assets are included in property and equipment. Amortization of property and equipment under capital leases is included with depreciation expense. In the event that property and equipment are idle, as a result of excess capacity or the early termination, non-renewal or reduction in scope of a turnkey screening operation, such assets are assessed for impairment on a periodic basis. Certain fixed assets related to the Company’s turnkey security screening program in Mexico are not currently in use. As of September 30, 2016, the net value of these assets is approximately $15 million, which amount is included in property and equipment in the condensed consolidated balance sheet. |
Revenue Recognition | Revenue Recognition The Company recognizes revenue from sales of products upon shipment when title and risk of loss passes, and when terms are fixed and collection is probable. 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. The portion of revenue for a sale attributable to installation is deferred and recognized when the installation service is provided completed. In an instance where terms of sale include subjective customer acceptance criteria, revenue is deferred until the Company has achieved the acceptance criteria, unless customer acceptance terms are perfunctory or inconsequential. Concurrent with the revenue recognition, the Company accrues reserves for estimated product return and warranty costs. Critical judgments made by management related to revenue recognition include the determination of 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. In instances where a contract calls for multiple deliverables and such deliverables constitute separate units of accounting, the Company may recognize revenue based on the value of the respective deliverables identified in the underlying contract. In connection with the agreement with the Servicio de Administración Tributaria (“SAT”) in Mexico, revenue is 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 is reflected in the period during which the change becomes known. In the SAT agreement, customer billings may be 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 exceed revenue recognition, deferred revenue is recorded. Revenues from out-of-warranty service maintenance contracts are recognized ratably over the term of such contracts. For services not derived from specific maintenance contracts, revenues are recognized as the services are performed. Deferred revenue for such services arises from payments received from customers for services not yet performed. On occasion, the Company receives advances from customers that are amortized against future customer payments pursuant to the underlying agreements. Such advances are classified in the condensed consolidated balance sheets as either current liabilities or long-term liabilities depending on when the Company estimates the corresponding amortization to occur. |
Recent Accounting Updates Not Yet Adopted | Recent Accounting Updates 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. Earlier adoption is permitted only for fiscal years beginning after December 15, 2016, including interim reporting periods within such fiscal years. In May 2016, FASB issued a narrow scope improvement, specifically to clarify two aspects - identifying performance obligations and licensing implementation guidance, to this ASU. The Company has not yet selected a transition method and is currently evaluating the impact this ASU may have on its results of operations. In July 2015, FASB issued an ASU amending some of the guidance on subsequent measurement of inventory. This ASU affects companies that are using first-in, first-out or average cost, or any other methods besides last-in, first out or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016, including interim reporting periods within that reporting period. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. 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, and interim periods within such fiscal year. Early application is permitted. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. In February 2016, the FASB issued an ASU which affects the accounting for leases. The ASU 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 fiscal years beginning after December 15, 2018, and interim periods within such fiscal years. Early adoption is permitted. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. In March 2016, the FASB issued an ASU relating to employee share-based payment accounting. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within such fiscal years. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its 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 the cash flow statement. This ASU addresses eight specific cash flow issues to reduce diversity in practice. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within such fiscal years. The Company has not yet adopted this ASU and is currently evaluating the impact it may have on its financial condition and results of operations. |
Basis of Presentation (Tables)
Basis of Presentation (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Basis of Presentation | |
Schedule of computation of basic and diluted earnings per share | 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, 2015 2016 Net income available to common stockholders $ $ Weighted average shares outstanding—basic Dilutive effect of equity awards Weighted average shares outstanding—diluted Basic earnings per share $ $ Diluted earnings per share $ $ |
Summary of fair values of financial assets and liabilities | The fair values of the Company’s financial assets and liabilities as of June 30, 2016 and September 30, 2016 are categorized as follows (in thousands): June 30, 2016 September 30, 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Equity securities $ $ — $ — $ $ $ — $ — $ Insurance company contracts — — — — Interest rate contract — ) — ) — ) — ) Total assets $ $ $ — $ $ $ $ — $ Liabilities—Contingent payment obligations $ — $ — $ $ $ — $ — $ $ |
Business Combinations (Tables)
Business Combinations (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Business Combinations | |
Schedule of assets acquired and liabilities assumed | The following is a preliminary estimate of the assets acquired and the liabilities assumed by OSI Systems in the acquisition, reconciled to total estimated purchase consideration (in thousands): Cash and cash equivalents $ Accounts receivable Inventories Other current assets Property and equipment Intangible assets Other long-term assets Accounts payable ) Accrued payroll and related expenses ) Deferred revenues — current ) Advances from customers ) Other accrued expenses and current liabilities ) Deferred revenues - long term ) Deferred income tax liability ) Other long-term liabilities ) Net assets acquired Goodwill Total consideration $ |
Summary of the fair value of acquired identifiable intangible assets as of the acquisition date | The following table summarizes the fair value of acquired identifiable intangible assets as of the acquisition date (amounts in thousands): Weighted Gross Average Carrying Lives Value Amortizable assets: Developed technology 10 years $ Customer relationships/backlog 7 years Total amortizable assets Non-amortizable assets: Trademarks and trade names IPR&D Total intangible assets $ |
Pro forma results of operations assuming the AS&E acquisition had occurred on July 1, 2015 | The following unaudited pro forma results of operations assume the AS&E acquisition had occurred on July 1, 2015 (in thousands): Three Months Ended 2015 2016 Revenues $ $ Income (loss) before taxes $ $ ) |
Balance Sheet Details (Tables)
Balance Sheet Details (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Balance Sheet Details | |
Schedule of selected balance sheet accounts | The following tables provide details of selected balance sheet accounts (in thousands): June 30, September 30, 2016 2016 Accounts receivable $ $ Less allowance for doubtful accounts ) ) Total $ $ June 30, September 30, 2016 2016 Raw materials $ $ Work-in-process Finished goods Total $ $ Estimated Useful June 30, September 30, Lives 2016 2016 Land N/A $ $ Buildings, civil works and improvements 20 - 40 years Leasehold improvements 1 - 12 years Equipment and tooling 3 - 10 years Furniture and fixtures 3 - 13 years Computer equipment 3 - 5 years Computer software 3 - 10 years Construction in process N/A Total Less accumulated depreciation and amortization ) ) Property and equipment, net $ $ |
Goodwill and Intangible Assets
Goodwill and Intangible Assets (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Goodwill and Intangible Assets | |
Schedule of carrying amount of goodwill | The changes in the carrying value of goodwill for the three month period ended September 30, 2016 are as follows (in thousands): Optoelectronics and Security Healthcare Manufacturing Division Division Division Consolidated Balance as of June 30, 2016 $ $ $ $ Goodwill acquired or adjusted during the period — — Foreign currency translation adjustment ) ) Balance as of September 30, 2016 $ $ $ $ |
Schedule of intangible assets | Intangible assets consisted of the following (in thousands): June 30, 2016 September 30, 2016 Weighted Gross Gross Average Carrying Accumulated Intangibles Carrying Accumulated Intangibles Lives Value Amortization Net Value Amortization Net Amortizable assets: Software development costs 9 years $ $ $ $ $ $ Patents 20 years Developed technology 10 years Customer relationships/backlog 7 years Total amortizable assets Non-amortizable assets: Trademarks and trade names — — IPR&D — — — — Total intangible assets $ $ $ $ $ $ |
Schedule of estimated future amortization expense | At September 30, 2016, the estimated future amortization expense was as follows (in thousands): 2017 (remaining 9 months) $ 2018 2019 2020 2021 2022 2023 and thereafter, including assets that have not yet begun to be amortized Total $ |
Impairment, Restructuring and23
Impairment, Restructuring and Other Charges (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Impairment, Restructuring and Other Charges | |
Summary of the impairment, restructuring and other charges | The following table summarizes the impairment, restructuring and other charges (in thousands): Three Months Ended 2015 2016 Impairment of assets $ — $ Restructuring and other charges: Acquisition-related costs — Facility closure / consolidation — Employee termination — Other — Total impairment, restructuring and other charges $ — $ |
Borrowings (Tables)
Borrowings (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Borrowings | |
Schedule of long-term debt | Long-term debt consisted of the following (in thousands): June 30, 2016 September 30, 2016 Term loans $ $ Other long-term debt Less current portion of long-term debt ) ) Long-term portion of debt $ $ |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Stockholders' Equity | |
Schedule of stock-based compensation expense recorded in the consolidated statements of operations | The Company recorded stock-based compensation expense in the condensed consolidated statements of operations as follows (in thousands): Three Months Ended September 30, 2015 2016 Cost of goods sold $ $ Selling, general and administrative Research and development Stock based compensation expense Less: Related income tax benefit ) ) Stock based compensation expense, net $ $ |
Summary of stock option activity | Weighted Average Weighted-Average Aggregate Number of Exercise Remaining Contractual Intrinsic Value Options Price Term (in thousands) Outstanding at June 30, 2016 $ Granted $ Exercised ) $ Expired or forfeited ) $ Outstanding at September 30, 2016 $ 3.7 years $ Exercisable at September 30, 2016 $ 3.5 years $ |
Summary of restricted stock award and RSU award activity | Weighted- Average Shares Fair Value Nonvested at June 30, 2016 $ Granted $ Vested ) $ Replacement RSUs(1) $ Forfeited ) $ Nonvested at September 30, 2016 $ Note 1 – Pursuant to the acquisition of AS&E, the Company assumed unvested RSUs originally granted by AS&E and converted them into RSUs for the Company’s common stock. |
Retirement Benefit Plans (Table
Retirement Benefit Plans (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Retirement Benefit Plans | |
Schedule of net periodic pension expense | The components of net periodic pension expense are as follows (in thousands): Three Months Ended September 30, 2015 2016 Service cost $ $ Interest cost Amortization of prior service cost Net periodic pension expense $ $ |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies | |
Schedule of changes in warranty provisions | The following table presents changes in warranty provisions (in thousands): Three Months Ended September 30, 2015 2016 Balance at beginning of period $ $ Additions and adjustments Reductions for warranty repair costs ) ) Balance at end of period $ $ |
Segment Information (Tables)
Segment Information (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Segment Information | |
Schedule of operations and identifiable assets by industry segment | The following tables present the operations and identifiable assets by industry segment (in thousands): Three Months Ended September 30, 2015 2016 Revenues (1) — by Segment: Security division $ $ Healthcare division Optoelectronics and Manufacturing division, including intersegment revenues Intersegment revenues elimination ) ) Total $ $ Three Months Ended September 30, 2015 2016 Operating income (loss) — by Segment: Security division $ $ Healthcare division ) Optoelectronics and Manufacturing division Corporate ) ) Eliminations (2) ) Total $ $ June 30, September 30, 2016 2016 Assets (1) — by Segment: Security division $ $ Healthcare division Optoelectronics and Manufacturing division Corporate Eliminations (2) ) ) Total $ $ (1) For the three months ended September 30, 2015 and 2016, one customer, Servicio de Administración Tributaria in Mexico, accounted for 15% and 13% of total net revenues, respectively. No customer accounted for greater than 10% of accounts receivable as of June 30, 2016 and September 30, 2016. (2) Eliminations within operating income primarily reflect the change in the elimination of intercompany profit in inventory not-yet-realized. Eliminations in assets reflect the amount of intercompany profits in inventory as of the balance sheet date. Such intercompany profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions. |
Basis of Presentation (Details)
Basis of Presentation (Details) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | |
Sep. 30, 2016USD ($)item$ / sharesshares | Sep. 30, 2015USD ($)$ / sharesshares | |
Description of Business | ||
Number of operating segments | item | 3 | |
Computation of basic and diluted earnings per share | ||
Net income available to common stockholders | $ | $ 677 | $ 10,805 |
Weighted average shares outstanding- basic | 18,943 | 19,734 |
Dilutive effect of equity awards (in shares) | 648 | 740 |
Weighted average shares outstanding- diluted | 19,591 | 20,474 |
Basic earnings per share (in dollars per share) | $ / shares | $ 0.04 | $ 0.55 |
Diluted earnings per share (in dollars per share) | $ / shares | $ 0.03 | $ 0.53 |
Shares excluded from computation of diluted net income per share: | ||
Stock option and stock awards excluded from computation due to anti-dilutive effect (in shares) | 100 | 100 |
Basis of Presentation - Fair Va
Basis of Presentation - Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 |
Fair value of financial instruments | ||
Liabilities - Contingent payment obligations | $ 17,100 | $ 17,100 |
Property and Equipment | ||
Net value of turnkey security screening program assets at Mexico | 15,000 | |
Recurring | ||
Fair value of financial instruments | ||
Equity securities | 384 | 354 |
Insurance company contracts | 22,443 | 21,353 |
Interest rate contract | (13) | (31) |
Total assets | 22,814 | 21,676 |
Liabilities - Contingent payment obligations | 17,117 | 17,117 |
Recurring | Level 1 | ||
Fair value of financial instruments | ||
Equity securities | 384 | 354 |
Total assets | 384 | 354 |
Recurring | Level 2 | ||
Fair value of financial instruments | ||
Insurance company contracts | 22,443 | 21,353 |
Interest rate contract | (13) | (31) |
Total assets | 22,430 | 21,322 |
Recurring | Level 3 | ||
Fair value of financial instruments | ||
Total assets | 0 | 0 |
Liabilities - Contingent payment obligations | $ 17,117 | $ 17,117 |
Business Combinations - Purchas
Business Combinations - Purchase Price and Allocation (Details) - USD ($) $ in Thousands | Sep. 09, 2016 | Sep. 30, 2016 | Jun. 30, 2016 |
Allocation of total consideration to assets acquired and liabilities assumed | |||
Goodwill | $ 242,590 | $ 122,819 | |
AS&E | |||
Business Combinations | |||
Percentage of ownership interest acquired | 100.00% | ||
Total consideration | $ 266,000 | ||
Fair value of replacement RSUs and AS&E's RSU | 1,400 | ||
Cash on hand to pay down the revolving bank line of credit | $ 69,000 | ||
Allocation of total consideration to assets acquired and liabilities assumed | |||
Cash and cash equivalents | 79,195 | ||
Accounts receivable | 25,048 | ||
Inventories | 30,439 | ||
Other current assets | 7,368 | ||
Property and equipment | 5,834 | ||
Intangible assets | 74,800 | ||
Other long-term assets | 201 | ||
Accounts payable | (5,273) | ||
Accrued payroll and related expenses | (4,629) | ||
Deferred revenues - current | (11,281) | ||
Advances from customers | (13,785) | ||
Other accrued expenses and current liabilities | (6,426) | ||
Deferred revenues - long term | (3,225) | ||
Deferred income tax liability | (9,455) | ||
Other long-term liabilities | (18,966) | ||
Net assets acquired | 149,845 | ||
Goodwill | 116,158 | ||
Total consideration | $ 266,003 |
Business Combinations - Intangi
Business Combinations - Intangible Assets (Details) - AS&E $ in Thousands | 3 Months Ended |
Sep. 30, 2016USD ($) | |
Business Combinations | |
Amortizable assets | $ 59,300 |
Total intangible assets | 74,800 |
Trademarks and trade names | |
Business Combinations | |
Non-amortizable assets | 12,300 |
IPR&D | |
Business Combinations | |
Non-amortizable assets | $ 3,200 |
Developed technology | |
Business Combinations | |
Weighted Average Useful Lives | 10 years |
Amortizable assets | $ 31,750 |
Customer relationships/backlog | |
Business Combinations | |
Weighted Average Useful Lives | 7 years |
Amortizable assets | $ 27,550 |
Business Combinations - Revenue
Business Combinations - Revenue and Income (Details) - AS&E - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | |
Business Combinations | |||
Amount included in revenue | $ 14,200 | ||
Amount included in operating income | $ 2,800 | ||
pro forma results of operations assume the AS&E acquisition had occurred on July 1, 2015 | |||
Revenues | $ 238,611 | $ 224,717 | |
Income (loss) before taxes | $ (27,388) | $ 4,705 |
Balance Sheet Details (Details)
Balance Sheet Details (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Accounts Receivable | |||
Accounts receivable | $ 185,448 | $ 148,767 | |
Less allowance for doubtful accounts | (7,591) | (7,051) | |
Total | 177,857 | 141,716 | |
Inventories | |||
Raw materials | 140,550 | 133,540 | |
Work-in-process | 63,713 | 47,460 | |
Finished goods | 85,338 | 92,288 | |
Total | 289,601 | 273,288 | |
Property and Equipment | |||
Property and equipment, gross | 399,775 | 392,017 | |
Less accumulated depreciation and amortization | (220,945) | (208,903) | |
Property and equipment, net | 178,830 | 183,114 | |
Depreciation expense | 13,300 | $ 13,000 | |
Land | |||
Property and Equipment | |||
Property and equipment, gross | 14,498 | 14,498 | |
Buildings, civil works and improvements | |||
Property and Equipment | |||
Property and equipment, gross | $ 170,766 | 170,232 | |
Buildings, civil works and improvements | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 20 years | ||
Buildings, civil works and improvements | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 40 years | ||
Leasehold improvements | |||
Property and Equipment | |||
Property and equipment, gross | $ 9,635 | 9,015 | |
Leasehold improvements | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 1 year | ||
Leasehold improvements | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 12 years | ||
Equipment and tooling | |||
Property and Equipment | |||
Property and equipment, gross | $ 159,512 | 154,309 | |
Equipment and tooling | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 3 years | ||
Equipment and tooling | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 10 years | ||
Furniture and fixtures | |||
Property and Equipment | |||
Property and equipment, gross | $ 3,340 | 3,314 | |
Furniture and fixtures | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 3 years | ||
Furniture and fixtures | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 13 years | ||
Computer equipment | |||
Property and Equipment | |||
Property and equipment, gross | $ 18,562 | 17,902 | |
Computer equipment | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 3 years | ||
Computer equipment | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 5 years | ||
Computer software | |||
Property and Equipment | |||
Property and equipment, gross | $ 19,113 | 17,769 | |
Computer software | Minimum | |||
Property and Equipment | |||
Estimated Useful Lives | 3 years | ||
Computer software | Maximum | |||
Property and Equipment | |||
Estimated Useful Lives | 10 years | ||
Construction in process | |||
Property and Equipment | |||
Property and equipment, gross | $ 4,349 | $ 4,978 |
Goodwill and Intangible Asset35
Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands | 3 Months Ended |
Sep. 30, 2016USD ($) | |
Changes in the carrying amount of goodwill | |
Balance at the beginning of the period | $ 122,819 |
Goodwill acquired or adjusted during the period | 120,004 |
Foreign currency translation adjustment | (233) |
Balance at the end of the period | 242,590 |
Security Division | |
Changes in the carrying amount of goodwill | |
Balance at the beginning of the period | 32,922 |
Goodwill acquired or adjusted during the period | 120,004 |
Foreign currency translation adjustment | 112 |
Balance at the end of the period | 153,038 |
Healthcare Division | |
Changes in the carrying amount of goodwill | |
Balance at the beginning of the period | 42,574 |
Foreign currency translation adjustment | 10 |
Balance at the end of the period | 42,584 |
Optoelectronics and Manufacturing Division | |
Changes in the carrying amount of goodwill | |
Balance at the beginning of the period | 47,323 |
Foreign currency translation adjustment | (355) |
Balance at the end of the period | $ 46,968 |
Goodwill and Intangible Asset36
Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Amortizable assets: | |||
Gross Carrying Value | $ 114,603 | $ 57,326 | |
Accumulated Amortization | 14,704 | 14,711 | |
Total | 99,899 | 42,615 | |
Total intangible assets | |||
Gross Carrying Value | 144,053 | 70,994 | |
Total intangible assets | 129,349 | 56,283 | |
Amortization expense | 2,100 | $ 1,100 | |
Trademarks and trade names | |||
Non-amortizable assets: | |||
Gross Carrying Value | 26,250 | 13,668 | |
IPR&D | |||
Non-amortizable assets: | |||
Gross Carrying Value | $ 3,200 | ||
Software development costs | |||
Intangible assets | |||
Weighted Average Lives | 9 years | ||
Amortizable assets: | |||
Gross Carrying Value | $ 26,935 | 22,091 | |
Accumulated Amortization | 5,627 | 4,120 | |
Total | $ 21,308 | 17,971 | |
Patents | |||
Intangible assets | |||
Weighted Average Lives | 20 years | ||
Amortizable assets: | |||
Gross Carrying Value | $ 7,916 | 8,111 | |
Accumulated Amortization | 1,362 | 1,760 | |
Total | $ 6,554 | 6,351 | |
Developed technology | |||
Intangible assets | |||
Weighted Average Lives | 10 years | ||
Amortizable assets: | |||
Gross Carrying Value | $ 39,526 | 12,901 | |
Accumulated Amortization | 3,398 | 3,969 | |
Total | $ 36,128 | 8,932 | |
Customer relationships/backlog | |||
Intangible assets | |||
Weighted Average Lives | 7 years | ||
Amortizable assets: | |||
Gross Carrying Value | $ 40,226 | 14,223 | |
Accumulated Amortization | 4,317 | 4,862 | |
Total | $ 35,909 | $ 9,361 |
Goodwill and Intangible Asset37
Goodwill and Intangible Assets - Intangible Amortization (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Estimated future amortization expense | |||
2017 (remaining 9 months) | $ 10,627 | ||
2,018 | 14,917 | ||
2,019 | 14,759 | ||
2,020 | 13,048 | ||
2,021 | 10,810 | ||
2,022 | 8,366 | ||
2023 and thereafter, including assets that have not yet begun to be amortized | 27,372 | ||
Total | 99,899 | $ 42,615 | |
Software development costs | |||
Estimated future amortization expense | |||
Total | 21,308 | $ 17,971 | |
Capitalized software development costs | $ 1,400 | $ 400 |
Impairment, Restructuring and38
Impairment, Restructuring and Other Charges (Details) $ in Thousands | 3 Months Ended |
Sep. 30, 2016USD ($) | |
Impairment, Restructuring and Other Charges | |
Impairment of assets | $ 5,418 |
Acquisition-related costs | 3,874 |
Facility closure / consolidation | 176 |
Employee termination | 471 |
Other | 18 |
Total impairment, restructuring and other charges | $ 9,957 |
Borrowings (Details)
Borrowings (Details) - USD ($) $ in Thousands | 3 Months Ended | |||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Sep. 30, 2012 | |
Borrowings | ||||
Amount outstanding | $ 339,000 | $ 125,000 | ||
Term loans | 6,370 | 6,847 | ||
Other long-term debt | 1,934 | 1,966 | ||
Total | 8,304 | 8,813 | ||
Less current portion of long-term debt | (2,681) | (2,759) | ||
Long-term portion of debt | 5,623 | $ 6,054 | ||
Revolving credit facility | ||||
Borrowings | ||||
Maximum borrowing capacity | 450,000 | |||
Sub-limit available for letters of credit | $ 375,000 | |||
Unused commitment fee (as a percent) | 0.30% | 0.20% | ||
Amount outstanding | $ 339,000 | |||
Amount outstanding under letters-of-credit | $ 33,200 | |||
Revolving credit facility | Minimum | ||||
Borrowings | ||||
Unused commitment fee (as a percent) | 0.20% | |||
Revolving credit facility | Maximum | ||||
Borrowings | ||||
Increase in the credit agreement's borrowing capacity available under certain circumstances | $ 200,000 | |||
Unused commitment fee (as a percent) | 0.35% | |||
Revolving credit facility | LIBOR | ||||
Borrowings | ||||
Interest rate margin (as a percent) | 1.75% | 1.25% | ||
Revolving credit facility | LIBOR | Minimum | ||||
Borrowings | ||||
Interest rate margin (as a percent) | 1.25% | |||
Revolving credit facility | LIBOR | Maximum | ||||
Borrowings | ||||
Interest rate margin (as a percent) | 2.00% | |||
Bank lines-of-credit | ||||
Borrowings | ||||
Amount outstanding | $ 0 | |||
Amount outstanding under letters-of-credit | 38,500 | |||
Available credit facility | 16,600 | |||
Total cash borrowing sub-limit | $ 1,300 | |||
Seven-year term loan due in fiscal 2020 | ||||
Borrowings | ||||
Principal amount | $ 11,100 | |||
Term of loan | 7 years | |||
Effective interest rate (as a percent) | 2.20% | |||
Seven-year term loan due in fiscal 2020 | LIBOR | ||||
Borrowings | ||||
Variable basis rate | LIBOR | |||
Interest rate margin (as a percent) | 1.25% |
Stockholders' Equity - Stock-ba
Stockholders' Equity - Stock-based Compensation (Details) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Sep. 30, 2016USD ($)$ / sharesitemshares | Sep. 30, 2015USD ($)shares | |
Stock-based Compensation | ||
Number of share-based employee compensation plans | item | 2 | |
Number of share-based employee compensation plans assumed from the acquisition of AS&E | item | 2 | |
Stock based compensation expense | $ | $ 5,410 | $ 4,465 |
Less: Related income tax benefit | $ | (2,142) | (1,699) |
Stock based compensation expense, net | $ | $ 3,268 | $ 2,766 |
Weighted-average period | 1 year 9 months 18 days | |
Number of Options | ||
Outstanding at the beginning of the period (in shares) | 934,112 | |
Granted (in shares) | 328 | |
Exercised (in shares) | (4,136) | |
Expired or forfeited (in shares) | (2,287) | |
Outstanding at the end of the period (in shares) | 928,017 | |
Exercisable at the end of the period (in shares) | 893,538 | |
Weighted-Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ / shares | $ 28.67 | |
Granted (in dollars per share) | $ / shares | 61.17 | |
Exercised (in dollars per share) | $ / shares | 46.97 | |
Expired or forfeited (in dollars per share) | $ / shares | 71.42 | |
Outstanding at the end of the period (in dollars per share) | $ / shares | 28.50 | |
Exercisable at the end of the period (in dollars per share) | $ / shares | $ 26.85 | |
Weighted-Average Remaining Contractual Term | ||
Outstanding at the end of the period | 3 years 8 months 12 days | |
Exercisable at the end of the period | 3 years 6 months | |
Aggregate Intrinsic Value | ||
Outstanding at the end of the period | $ | $ 34,600 | |
Exercisable at the end of the period | $ | 34,580 | |
Stock Options | ||
Stock-based Compensation | ||
Unrecognized compensation cost | $ | 600 | |
Restricted stock and RSU | ||
Stock-based Compensation | ||
Unrecognized compensation cost | $ | $ 29,900 | |
Shares | ||
Nonvested at the beginning of the period (in shares) | 530,498 | |
Granted (in shares) | 187,815 | |
Vested (in shares) | (24.646) | |
Replacement RSUs | 65,954 | |
Forfeited (in shares) | (3,362) | |
Nonvested at the end of the period (in shares) | 756,259 | |
Weighted-Average Fair Value | ||
Nonvested at the beginning of the period (in dollars per share) | $ / shares | $ 67.94 | |
Granted (in dollars per share) | $ / shares | 61.26 | |
Vested (in dollars per share) | $ / shares | $ 68.71 | |
Replacement RSUs | $ / shares | 67.76 | |
Forfeited (in dollars per share) | $ / shares | $ 70.21 | |
Nonvested at the end of the period (in dollars per share) | $ / shares | $ 66.23 | |
Performance-based restricted stock units | ||
Shares | ||
Granted (in shares) | 155,488 | 139,300 |
Performance-based restricted stock units | Minimum | ||
Weighted-Average Fair Value | ||
Payout as a percentage of the original number of shares awarded or units awarded, which are converted into shares of the Company's common stock | 0.00% | |
Performance-based restricted stock units | Maximum | ||
Weighted-Average Fair Value | ||
Payout as a percentage of the original number of shares awarded or units awarded, which are converted into shares of the Company's common stock | 250.00% | |
2012 Plan | ||
Weighted-Average Fair Value | ||
Securities available for grant | 1,700,000 | |
2012 Plan | Restricted stock and RSU | ||
Weighted-Average Fair Value | ||
Number of shares available for grant reduced for each award granted | 1.87 | |
Number of shares available for grant increased for each award forfeited and returned | 1.87 | |
2005 AS&E Plan and the 2014 AS&E Plan | RSU | ||
Number of Options | ||
Granted (in shares) | 0 | |
Cost of good sold | ||
Stock-based Compensation | ||
Stock based compensation expense | $ | $ 295 | $ 292 |
Selling, general and administrative | ||
Stock-based Compensation | ||
Stock based compensation expense | $ | 5,060 | 4,108 |
Research and development | ||
Stock-based Compensation | ||
Stock based compensation expense | $ | $ 55 | $ 65 |
Stockholders' Equity - Share Re
Stockholders' Equity - Share Repurchase Program (Details) - shares | Sep. 30, 2016 | Apr. 30, 2016 | Oct. 31, 2015 | Apr. 30, 2013 | Sep. 30, 2004 | Mar. 31, 1999 |
Share Repurchase Program | ||||||
Number of repurchased shares authorized | 1,000,000 | 500,000 | 1,000,000 | 1,000,000 | 2,000,000 | |
Number of available shares may be repurchased | 1,020,763 |
Retirement Benefit Plans (Detai
Retirement Benefit Plans (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Net Periodic Benefit Costs | ||
Service cost | $ 224 | $ 204 |
Interest cost | 7 | 9 |
Amortization of prior service cost | 70 | 105 |
Net periodic pension expense | 301 | 318 |
Contributions made by the entity to the defined benefit plans | 0 | 0 |
Contributions made by the entity to defined contribution plans | $ 1,200 | $ 1,100 |
Commitments and Contingencies43
Commitments and Contingencies (Details) $ in Thousands | 3 Months Ended | |||
Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | Jun. 30, 2016USD ($) | Jun. 30, 2012USD ($) | |
Contingent Acquisition Obligations | ||||
Maximum amount of future payments under contingent consideration | $ 33,200 | |||
Contingent payment obligations | $ 17,100 | $ 17,100 | ||
Environmental Contingencies | ||||
Number of investigations discovering soil and groundwater contamination at Hawthorne, CA facility | item | 1 | |||
Changes in provision for warranties | ||||
Warranty provision at beginning of period | $ 15,948 | $ 12,738 | ||
Additions and adjustments | 2,822 | 3,607 | ||
Reductions for warranty repair costs | (1,474) | (3,033) | ||
Warranty provision at end of period | 17,296 | $ 13,312 | ||
Mexican government | ||||
Advances from Customers | ||||
Advances from customers | $ 18,800 | $ 25,000 | $ 100,000 | |
Royalty payments | ||||
Contingent Acquisition Obligations | ||||
Purchase agreements containing royalty payments, number | item | 1 |
Segment Information - Operation
Segment Information - Operations and Identifiable Assets (Details) $ in Thousands | 3 Months Ended | ||
Sep. 30, 2016USD ($)itemcustomer | Sep. 30, 2015USD ($)customer | Jun. 30, 2016USD ($) | |
Operations and identifiable assets by industry segment | |||
Number of identifiable industry segments | item | 3 | ||
Total revenues | $ 220,855 | $ 200,050 | |
Income (loss) from operations | 2,099 | $ 15,697 | |
Segments assets | $ 1,253,013 | $ 991,723 | |
Servicio de Administracion Tributaria in Mexico | Revenue | Customer | |||
Operations and identifiable assets by industry segment | |||
Number of major customers | customer | 1 | 1 | |
Percentage of benchmark derived from specified source | 13.00% | 15.00% | |
Operating Segments | Security Division | |||
Operations and identifiable assets by industry segment | |||
Total revenues | $ 123,709 | $ 96,410 | |
Income (loss) from operations | 9,350 | 12,635 | |
Segments assets | 821,192 | 519,068 | |
Operating Segments | Healthcare Division | |||
Operations and identifiable assets by industry segment | |||
Total revenues | 45,650 | 51,465 | |
Income (loss) from operations | (3,264) | 2,938 | |
Segments assets | 191,754 | 200,067 | |
Operating Segments | Optoelectronics and Manufacturing Division | |||
Operations and identifiable assets by industry segment | |||
Total revenues | 56,954 | 62,548 | |
Income (loss) from operations | 4,650 | 5,561 | |
Segments assets | 204,450 | 211,337 | |
Eliminations | |||
Operations and identifiable assets by industry segment | |||
Total revenues | (5,458) | (10,373) | |
Income (loss) from operations | 376 | (235) | |
Segments assets | (3,343) | (3,719) | |
Corporate | |||
Operations and identifiable assets by industry segment | |||
Income (loss) from operations | (9,013) | $ (5,202) | |
Segments assets | $ 38,960 | $ 64,970 |