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Business Combinations | 6 Months Ended
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Dec. 31, 2017
Business Combinations |
Business Combinations | 2. Business Combinations Under ASU 805, the acquisition method of accounting requires us to record assets acquired less liabilities assumed in an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price over the estimated fair value of the assets acquired and liabilities assumed should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding adjustments to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition of Explosive Trace Detection Business On July 7, 2017, we acquired the global explosive trace detection business (“ETD”) from Smiths Group plc. We financed the total purchase price of $80.5 million with a combination of cash on hand and borrowings under our existing revolving bank line of credit. Due to the timing and complexity of the transaction, we are in the process of finalizing our valuation of the assets acquired and liabilities assumed. As of December 31, 2017, the valuation of certain assets and liabilities of ETD were preliminary in nature as we are awaiting the conclusion of the valuation of certain assets by a third party and resolution of accurately carving out certain assets and liabilities from the prior owners of the business. As a result, the ETD acquisition could necessitate the use of the full one year measurement period to establish the fair values of assets and liabilities as of the acquisition date, including intangible assets, goodwill, accounts receivable, inventory, deferred revenue, property and equipment, contractual obligations, income tax obligations, and certain reserves. Changes in the fair values of assets and liabilities from what was reported in our condensed consolidated financial statements for the three months ended September 30, 2017 are primarily a result of additional information that impacted our estimates of fair value and conformance to our accounting policies. During the quarter ended December 31, 2017, goodwill increased by $2.5 million, driven primarily by additional accounts payable and other current liabilities identified as of the acquisition date. Further potential adjustments made could be material in relation to these preliminary values below (amounts in thousands):
Cash and cash equivalents |  | $ | 4 |
Accounts receivable |  | 12,113 |
Inventories |  | 12,217 |
Property and equipment |  | 1,599 |
Intangible assets |  | 30,040 |
Other long-term assets |  | 301 |
Accounts payable |  | (4,784 | )
Accrued payroll and related expenses |  | (2,339 | )
Deferred revenues — current |  | (2,011 | )
Accrued warranties |  | (1,629 | )
Other accrued expenses and current liabilities |  | (1,376 | )
Net assets acquired |  | 44,135 |
Goodwill |  | 36,332 |
Total consideration |  | $ | 80,467 |
The goodwill is largely attributable to expected growth, intellectual capital and the assembled workforce of the ETD business. Intangible assets are recorded at estimated fair value, as determined by management based on available information, which includes a preliminary valuation prepared by a third party. The fair value attributed to the intangible assets acquired was based on preliminary estimates, assumptions and other information compiled by management, including valuations that utilized established valuation techniques. The value attributed to goodwill and intangible assets is partially non-deductible for income tax purposes. The following table summarizes the fair value of acquired identifiable intangible assets as of the acquisition date (amounts in thousands):
|  | Weighted |  |  |
|  | Average |  | Fair |
|  | Lives |  | Value |
Amortizable assets: |  |  |  |  |
Developed technology |  | 10 years |  | $ | 13,220 |
Customer relationships |  | 8 years |  | 12,920 |
Backlog |  | 2 years |  | 3,500 |
Total amortizable assets |  |  |  | 29,640 |
Non-amortizable asset — IPR&D |  |  |  | 400 |
Total intangible assets |  |  |  | $ | 30,040 |
The condensed consolidated statements of operations include $19.7 million of revenue and $2.6 million of income from operations from ETD for the three months ended December 31, 2017, and $41.4 million of revenue and $6.6 million of income from operations from ETD for the period from July 7, 2017 to December 31, 2017. The following unaudited pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the periods presented or the results which may occur in the future. The following unaudited pro forma results of operations assume the ETD acquisition had occurred on July 1, 2016 (in thousands):
|  | Three Months Ended December 31, |  | Six Months Ended December 31, |
|  | 2016 |  | 2017 |  | 2016 |  | 2017 |
Revenues |  | $ | 266,167 |  | $ | 277,528 |  | $ | 502,918 |  | $ | 534,661 |
Income from operations |  | $ | 13,328 |  | $ | 18,147 |  | $ | 17,769 |  | $ | 37,541 |
Significant pro forma adjustments incorporated into the pro forma results above include the recognition of additional amortization expense related to acquired intangible assets. In addition, the pro forma results for the three and six months ended December 31, 2016 were carved out from the operations of the business when it was owned by its former parent. As a result, these carve-out results have been prepared from the historical accounts of its former parent, and include revenues and expenses specifically identified to ETD, and allocations of certain overhead expenses. Acquisition of American Science and Engineering On September 9, 2016, we acquired by merger 100% ownership of American Science and Engineering, Inc. (“AS&E”), a leading provider of detection solutions for advanced cargo, parcel, and personnel inspection. AS&E’s operations are included in our Security division. We financed the total cash merger consideration of $266 million with a combination of cash on hand and borrowing under our existing revolving bank line of credit, and also issued restricted stock units (“RSUs”) of the Company to replace RSUs previously issued by AS&E. Immediately following the close of the acquisition, we used $69 million of AS&E’s existing cash on hand to pay down the revolving bank line of credit. The valuation of the estimated fair value of the assets acquired and liabilities assumed as a result of this business combination has been finalized. Other Acquisitions In July 2017, we (through our Security division) completed an acquisition of a technology company. The acquisition purchase price was financed with cash on hand and was in an amount determined to be insignificant by management. On January 12, 2018, we (through our Optoelectronics and Manufacturing division) acquired an electronics component designer and manufacturer for approximately $21 million plus up to $6 million in potential earnout consideration. The acquisition was financed with cash on hand and borrowing under our existing revolving bank line of credit. The final purchase price is subject to customary adjustments relating to working capital. We have not completed the preliminary purchase price allocation as not all information required for the analysis was available.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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