(1) |
Consolidated balance sheets data reported in the table includes continuing and discontinued operations. |
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Business Overview
Abaxis, Inc. is a worldwide developer, manufacturer and marketer of portable blood analysis systems that are used in a broad range of medical specialties in human or veterinary patient care to provide clinicians with rapid blood constituent measurements. Until March 2015, Abaxis also provided veterinary reference laboratory diagnostic and consulting services for veterinarians through AVRL. See the section below entitled “Discontinued Operations” for further information.
Our corporate headquarters are located in Union City, California, from which we conduct our manufacturing, warehousing, research and development, regulatory, sales and marketing and administrative activities. We market and sell our products worldwide primarily through independent distributors, supplemented by our direct sales force. Our sales force is primarily located in the United States. Abaxis Europe GmbH, our wholly-owned subsidiary, markets and distributes diagnostic systems for medical and veterinary uses in the European and Asia Pacific markets.
We manage our business in two operating segments, the medical market and veterinary market, as described below. See “Segment Results” in this section for a detailed discussion of financial results.
Medical Market. We serve a worldwide customer group in the medical market consisting of physicians’ office practices across multiple specialties, urgent care, outpatient and walk-in clinics (free-standing or hospital-connected), health screening operations, home care providers (national, regional or local), nursing homes, ambulance companies, oncology treatment clinics, dialysis centers, pharmacies, hospital laboratories, military installations (ships, field hospitals and mobile care units), pharmaceutical clinical trials and cruise ship lines.
For our products in the human medical market, we employ primarily independent distributors to market our products. Starting in January 2013, we transitioned the majority of our medical product sales to Abbott as our exclusive distributor in the medical market. Pursuant to our Abbott Agreement, Abbott obtained the exclusive right to sell and distribute our Piccolo Xpress chemistry analyzers and associated consumables in the professionally-attended human healthcare market in the United States and China (including Hong Kong). Effective September 2013, we amended the Abbott Agreement to limit Abbott’s territory under such agreement to the United States. Under the Abbott Agreement, we have certain responsibilities for providing technical support and warranty services to Abbott in support of its marketing and sales efforts. The initial term of the Abbott Agreement ends on December 31, 2017, and after the initial term, the Abbott Agreement renews automatically for successive one-year periods unless terminated by either party based upon a notice of non-renewal six months prior to the then-current expiration date.
We will continue to sell and distribute these medical products outside of the market segments as to which Abbott has exclusive rights. For example, during the third quarter of fiscal 2016, we sold 200 Piccolo Xpress instruments to Fuzhou Kelian Medical Devices, Ltd. a point-of-care diagnostics distributor based in China. Under our Abbott Agreement, we will continue to sell and distribute to Catapult Health LLC and specified customer segments in the United States, including pharmacy and retail store clinics, shopping malls, clinical research organizations and cruise ship lines.
Veterinary Market. Our VetScan products serve a worldwide customer group in the veterinary market consisting of companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine and bovine practitioners, veterinary emergency clinics, veterinary referral hospitals, universities, government, pharmaceutical companies, biotechnology companies and private research laboratories.
We depend on a number of distributors in North America that distribute our VetScan products. In September 2012, we entered into a distribution agreement with MWI to purchase, market and sell the full line of Abaxis veterinary products throughout the United States. In the United States veterinary market segment, we also rely on various independent regional distributors. We continue to enter into additional distributor relationships to expand our distribution base in North America. In October 2014, we entered into distribution agreements with Henry Schein Animal Health and Patterson Companies, Inc. to sell the full line of Abaxis veterinary products throughout the United States. We depend on our distributors to assist us in promoting our VetScan products, and accordingly, if one or more of our distributors were to stop selling our products in the future, we may experience a temporary sharp decline or delay in our sales revenues until our customers identify another distributor or purchase products directly from us. In addition to selling through distributors, we also directly supply our VetScan products to large group purchasing organizations, hospital networks and other buying groups in the United States, such as Veterinary Centers of America (VCA), a veterinary hospital chain in North America that operates more than 700 animal hospitals. In May 2014, we entered into a product supply agreement with VCA to supply our VetScan chemistry analyzers and diagnostic reagent discs for placement at VCA’s animal hospitals located in North America. In May 2014, we entered into a non-exclusive co-marketing agreement with VCA’s Antech Diagnostic laboratory services to supply our VetScan chemistry analyzers in combination with Antech Diagnostic laboratory services as a diagnostic solution to serve veterinary practices throughout North America. In the third quarter of fiscal 2016, we also entered into a five-year supply agreement with Banfield Pet Hospital, an organization with more than 900 pet hospitals within the United States and Puerto Rico. Under our supply agreement, we will provide our VetScan hematology analyzers and associated consumables to all of Banfield’s pet hospital locations, for which installation and training began in early fiscal 2017.
Discontinued Operations
In March 2015, we entered into an asset purchase agreement with Antech pursuant to which we sold substantially all of the assets of our AVRL business to Antech. The transaction closed on March 31, 2015. We determined that our AVRL business met the criteria to be classified as a discontinued operation, which required retrospective application to financial information for all periods presented. Accordingly, the historical financial statements appearing in this report have been revised to reflect this reclassification. Unless otherwise noted, references to revenues and expenses in this report are to our revenues and expenses excluding those from AVRL operations. See Note 3 of the Consolidated Financial Statements included in Part II, Item 8 of this report for more information.
The total purchase price under the asset purchase agreement was $21.0 million in cash. We received $20.1 million in cash proceeds during the fourth quarter of fiscal 2015 and we recognized a pre-tax gain of $12.3 million ($7.7 million after-tax) on sale of discontinued operations during fiscal 2015. Additionally, upon meeting certain conditions by the first anniversary of the closing date in March 2016, we recognized a pre-tax gain of $0.9 million ($0.6 million after-tax) on sale of discontinued operations during fiscal 2016.
The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds received over the costs incurred in connection with the sale of AVRL. During the fourth quarter of fiscal 2015, we recorded costs of $7.8 million related to cash payments for employee-related costs, including severance, contract termination and other associated costs. In connection with the transaction, we recorded disposal and an impairment charge on long-lived assets of $1.9 million during fiscal 2015. These items partially offset the cash proceeds that we received in accordance with the terms of the asset purchase agreement.
Overview of Financial Results
In fiscal 2016, total revenues were $218.9 million, an increase of 8% from fiscal 2015. The net increase in revenues was primarily attributable to revenues from consumable sales of $165.0 million, an increase of 14% over fiscal 2015, due to (a) an increase in the unit sales of medical and veterinary reagent discs due to an expanded instrument installed base, (b) higher sales of our VetScan Feline FeLV/FIV Rapid Test, which we introduced in fiscal 2015, (c) an increase in the unit sales of VetScan Canine Heartworm Rapid Test Kit and (d) an increase in the sales of VetScan rapid tests in North America resulting from two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. Revenues from instrument sales were $43.0 million, a decrease of 12% from fiscal 2015, due to a decrease in the unit sales of VetScan chemistry analyzers in the third quarter of fiscal 2016 due to (a) higher sales in the third quarter of fiscal 2015 to VCA’s Animal Hospitals resulting from a product supply agreement that we entered into in May 2014 and (b) higher sales of VetScan chemistry analyzers and VetScan hematology instruments in the third quarter of fiscal 2015 from initial stocking orders to two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. Gross profit in fiscal 2016 was $123.3 million, an increase of 13% from fiscal 2015, primarily attributable to higher unit sales of reagent discs in our veterinary market, which have a higher margin contribution, and changes in the product mix sold in our veterinary market.
Total operating expenses in fiscal 2016 were $76.9 million, an increase of $2.2 million, or 3%, from $74.7 million in fiscal 2015, primarily attributable to an increase in research and development spending related primarily to new product development and enhancement of existing products in both the medical and veterinary markets, including the development of electronic connectivity technology and additional projects related to high sensitivity immunoassay.
Net income for fiscal 2016 was $31.6 million, an increase of 16% from $27.3 million in fiscal 2015, due primarily to the increase in revenues of $16.3 million, as described above, offset in part by (a) an increase in our income tax provision of $3.8 million resulting from a higher income from continuing operations before income tax provision and (b) a gain from the sale of our AVRL business, net of tax, of $7.7 million in the fourth quarter of fiscal 2015. Our diluted net income per share increased to $1.38 in fiscal 2016 from $1.20 in fiscal 2015. Our diluted net income per share from continuing operations increased to $1.36 in fiscal 2016 from $0.91 in fiscal 2015.
Cash, cash equivalents and investments decreased by $5.1 million during fiscal 2016 to a total of $152.3 million at March 31, 2016. During fiscal 2016, operating cash flows were $28.1 million, a decrease of $8.3 million compared to $36.4 million during fiscal 2015, primarily attributable to payments in the first quarter of fiscal 2016 related to accrued liabilities for bonus, taxes and discontinued operations recorded at the end of fiscal 2015, partially offset by an increase in revenues of $16.3 million. Key non-operating uses of cash during fiscal 2016 included payments of $5.2 million to purchase property and equipment, payments of $5.3 million made for tax withholdings related to net share settlements of restricted stock units, payment of $10.0 million in cash dividends to shareholders and $13.0 million for repurchases of our common stock under our share repurchase program to repurchase and retire 325,000 shares of our common stock at an average purchase price of $40.18 per share, including commission expense.
Factors that May Impact Future Performance
Our industry is impacted by numerous competitive, regulatory and other significant factors. Our sales for any future periods are not predictable with a significant degree of certainty, and may depend on a number of factors outside of our control. We are dependent upon the efforts and priorities of our distributors in promoting and creating a demand for our products and as such, we do not have full control over the marketing and sale of our products into these markets. Should these efforts be unsuccessful, or should we fail to maintain these relationships, our business, financial condition and results of operations are likely to be adversely affected. We generally operate with a limited order backlog because our products are typically shipped shortly after orders are received. Product sales in any quarter are generally dependent on orders booked and shipped in that quarter. As a result, any shortfall in product sales during a quarter would negatively affect our results of operations and financial condition during that quarter. In addition, our sales may be adversely impacted by pricing pressure from competitors. Our ability to increase our revenues and profitability will depend, in part, on our ability to increase the sales volumes of our products, to increase the sales performance of our independent distributors, and to successfully compete with our competitors.
Abbott controls the marketing and sale of our primary medical products into most of the U.S. medical market and, accordingly, we are dependent upon the efforts and priorities of Abbott in promoting and creating a demand for such products in such market. Should these efforts be unsuccessful, our business, financial condition and results of operations may be adversely affected. For example, during fiscal 2014, we were adversely impacted by the timing of purchases of our medical products sold to Abbott as it integrated our products into its sales process and sold its inventory.
In the United States veterinary market, we rely on our national and independent regional distributors. We are also dependent upon the efforts and priorities of these distributors in promoting and creating a demand for our products and do not have full control over the marketing and sale of our products into these markets. Should these efforts be unsuccessful, or should we fail to maintain these relationships, our business, financial condition and results of operations are likely to be adversely affected. For example, during fiscal 2014, our strategy of increasing demand for our veterinary products through the expansion of our distribution partners, did not lead to the increased demand for our products in the veterinary clinics that we had anticipated resulting in excess channel inventory. In response, we took additional steps to more closely monitor and manage channel inventory in an effort to normalize the veterinary product inventories at our distribution partners in the United States. As a result of these efforts, we believe that our distributors’ purchases of our veterinary chemistry analyzers and related reagent discs in fiscal 2015 were substantially in line with in-clinic sales. For the hematology, i-STAT and VSpro specialty veterinary products that we sell in the United States, sales orders from our largest distributors in the veterinary market decreased during the first half of fiscal 2015 as compared to the same period in fiscal 2014, resulting from excess channel inventory created during the first half of fiscal 2014; however, as a result of our efforts in closely monitoring and managing channel inventory, we believe that these distributors’ purchases of hematology, i-STAT and VSpro specialty veterinary products were substantially in line with in-clinic sales in the third quarter of fiscal 2015. We only began selling through our distributors Henry Schein Animal Health and Patterson Companies, Inc. in the third quarter of fiscal 2015 and our revenues in future quarters may be impacted by the timing of purchases of our products sold by them as these new distributors integrate our products into their sales process. We will continue to closely monitor and manage channel inventory at our distribution partners in the United States.
Critical Accounting Policies, Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and the sensitivity of these estimates to deviations in the assumptions used in making them. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. However, there can be no assurance that our actual results will not differ from these estimates.
We have identified the policies below as critical because they are not only important to understanding our financial condition and results of operations, but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown. Accordingly, actual results may differ materially from our estimates. The impact and any associated risks related to these policies on our business operations are discussed below. For a more detailed discussion on the application of these and other accounting policies, see the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Revenue Recognition. Our primary customers are distributors and direct customers in both the medical and veterinary markets. Service revenues were primarily generated from veterinary reference laboratory diagnostic and consulting services for veterinarians. Revenues from product sales, net of estimated sales allowances, discounts and rebates, are recognized when (i) evidence of an arrangement exists, (ii) upon shipment of the products or rendering of services to the customer, (iii) the sales price is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. Rights of return are not provided. Until March 2015, we offered discounts on AVRL services for a specified period as incentives. Discounts were reductions to invoiced amounts within a specified period and were recorded at the time services are performed. Net service revenues were recognized at the time services were performed.
Amounts collected in advance of revenue recognition are recorded as a current or non-current deferred revenue liability based on the time from the balance sheet date to the future date of revenue recognition. We recognize revenue associated with extended maintenance agreements ratably over the life of the contract.
Multiple Element Revenue Arrangements. Our sales arrangements may contain multiple element revenue arrangements in which a customer may purchase a combination of instruments, consumables or extended maintenance agreements. Additionally, we provide incentives in the form of free goods or extended maintenance agreements to customers in connection with the sale of our instruments. We participate in selling arrangements in the veterinary market that include multiple deliverables, such as instruments and consumables. Prior to the sale of our AVRL business to Antech in March 2015, our selling arrangements in the veterinary market had also included service agreements associated with our veterinary reference laboratory. Judgments as to the allocation of consideration from an arrangement to the multiple elements of the arrangement, and the appropriate timing of revenue recognition are critical with respect to these arrangements.
A multiple element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. We allocate revenues to each element in a multiple element arrangement based upon the relative selling price of each deliverable. When applying the relative selling price method, we determine the selling price for each deliverable using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our best estimate of selling price for that deliverable. Revenue allocated to each element is then recognized when all revenue recognition criteria are met for each element.
Revenues from our multiple element arrangements are allocated separately to the instruments, consumables, extended maintenance agreements and incentives based on the relative selling price method. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product when it is sold separately. Revenues allocated to each element are then recognized when the basic revenue recognition criteria, as described above, are met for each element. Revenues associated with incentives in the form of free goods are deferred until the goods are shipped to the customer. Revenues associated with incentives in the form of extended maintenance agreements are deferred and recognized ratably over the life of the extended maintenance contract, generally one to three years. Incentives in the form of extended maintenance agreements are our most significant multiple element arrangement.
For our selling arrangements in the veterinary market that include multiple deliverables, such as instruments, consumables or service agreements (prior to the sale of AVRL in March 2015) associated with our veterinary reference laboratory, revenue is recognized upon delivery of the product or performance of the service during the term of the service contract when the basic revenue recognition criteria, as described above, are met for each element. We allocate revenues to each element based on the relative selling price of each deliverable. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately.
Until March 2015, we offered customer incentives consisting of arrangements with customers to include discounts on future sales of services associated with our veterinary reference laboratory. We applied judgment in determining whether future discounts are significant and incremental. When the future discount offered was not considered significant and incremental, we did not account for the discount as an element of the original arrangement. To determine whether a discount was significant and incremental, we looked to the discount provided in comparison to standalone sales of the same product to similar customers, the level of discount provided on other elements in the arrangement, and the significance of the discount to the overall arrangement. If the discount in the multiple element arrangement approximated the discount typically provided in standalone sales, that discount is not considered incremental. During fiscal 2015 and 2014, our customer incentive programs with future discounts were not significant and in fiscal 2016 we did not offer any such incentives.
At March 31, 2016 and 2015, the current portion of deferred revenue balances was $1.6 million and $1.3 million, respectively, and the non-current portion of deferred revenue balances was $2.3 million and $3.2 million, respectively. Net current and non-current deferred revenue decreased by $0.7 million from March 31, 2015 to March 31, 2016, primarily attributable to deferred revenue recognized ratably over the life of extended maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments. In October 2013, we changed the standard warranty period on certain instruments from three to five years, which resulted in a decrease in maintenance contracts offered to customers in the form of free services during the second half of fiscal 2014.
Starting in fiscal 2016, we entered into sales contracts as the lessor of instruments under sales-type lease agreements with our customers. In the veterinary market, we may offer arrangements to end users for monthly payments of instrument and consumable purchases over a term of six years. The present value of lease receivables, including accrued interest, was $2.1 million and $0, as of March 31, 2016 and 2015, respectively. Our short-term and long-term lease receivables are recorded within “Receivables” and “Other Assets,” respectively, on our consolidated balance sheets. Interest income is recognized monthly over the lease term using the effective-interest method.
Customer Programs. From time to time, we offer customer marketing and incentive programs. Our most significant customer programs are described as follows:
Instrument Trade-In Programs. We periodically offer trade-in programs to customers for trading in an existing instrument to purchase a new instrument and we will either provide incentives in the form of free goods or reduce the sales price of the instrument. These incentives in the form of free goods are recorded based on the relative selling price method according to the policies described above.
Instrument Rental Programs. We periodically offer programs to customers whereby certain instruments are made available to customers for rent or on an evaluation basis. These programs typically require customers to purchase a minimum quantity of consumables during a specified period for which we recognize revenue on the related consumables according to the policies described above. Depending on the program offered, customers may purchase the instrument during the rental or evaluation period. Proceeds from such sale are recorded as revenue according to the policies described above. Rental income, if any, is also recorded as revenue according to the policies described above.
Sales Incentive Programs. We periodically offer customer sales incentive programs and we record reductions to revenue related to these programs. Incentives may be provided in the form of rebates to distributors for volume-based purchases or upon meeting other specified requirements, end-user rebates and discounts. A summary of our revenue reductions is described below. Other rebate programs offered to distributors or customers vary from period to period in the medical and veterinary markets and were not significant.
· |
Volume-based Incentives. Volume-based incentives, in the form of rebates, are offered from time to time to distributors and group purchasing organizations upon meeting the sales volume requirements during a qualifying period and are recorded as a reduction to gross revenues during a qualifying period. The pricing rebate program is primarily offered to distributors and group purchasing organizations in the North America veterinary market, upon meeting the sales volume requirements of veterinary products during the qualifying period. Factors used in the rebate calculations include the identification of products sold subject to a rebate during the qualifying period and which rebate percentage applies. Based on these factors and using historical trends, adjusted for current changes, we estimate the amount of the rebate and record the rebate as a deduction to gross revenues when we record the sale of the product. The rebate is recorded as a reserve to offset accounts receivable as settlements are made through offsets to outstanding customer invoices. Settlement of the rebate accruals from the date of sale ranges from one to nine months after sale. Changes in the rebate accrual at the end of each period are based upon distributors and group purchasing organizations meeting the purchase requirements during the quarter. |
· |
Distributor Rebate Incentives. During fiscal 2016 and 2015, we offered a customer sales incentive program, whereby distributors were offered a rebate upon meeting certain requirements. We recognize the rebate obligation as a reduction of revenue at the later of the date on which we sell the product or the date the program is offered. These customer sales incentive programs require management to estimate the rebate amounts to distributors who will qualify for the incentive during the promotional period. We record the estimated liability in other current accrued liabilities on our consolidated balance sheets. Management’s estimates are based on historical experience and the specific terms and conditions of the incentive programs. |
· |
End-User Rebates and Discounts. From time to time, cash rebates are offered to end-users who purchase certain products or instruments during a promotional period and are recorded as a reduction to gross revenues. Additionally, we periodically offer sales incentives to end-users, in the form of sales discounts, to purchase consumables for a specified promotional period, typically over five years from the sale of our instrument, and we reimburse resellers for the value of the sales discount provided to the end-user. We estimate the amount of the incentive earned by end-users during a quarter and record a liability to the reseller as a reduction to gross revenues. Factors used in the liability calculation of incentives earned by end-users include the identification of qualified end-users under the sales program during the period and using historical trends. Settlement of the liability to the reseller ranges from one to twelve months from the date an end-user earns the incentive. |
The following table summarizes the change in total accrued sales incentive programs (in thousands):
|
|
Balance at
Beginning
of Year (1)
|
|
|
Provisions (2)
|
|
|
Payments
|
|
|
Balance at
End
of Year (1)
|
|
Year Ended March 31, 2016
|
|
$
|
5,865
|
|
|
$
|
9,627
|
|
|
$
|
(9,648
|
)
|
|
$
|
5,844
|
|
Year Ended March 31, 2015
|
|
$
|
700
|
|
|
$
|
10,230
|
|
|
$
|
(5,065
|
)
|
|
$
|
5,865
|
|
Year Ended March 31, 2014
|
|
$
|
1,043
|
|
|
$
|
1,872
|
|
|
$
|
(2,215
|
)
|
|
$
|
700
|
|
(1) |
Balance represent reserves related to volume-based incentives, included as an offset to accounts receivables in the consolidated balance sheets, and accruals for distributor rebate incentives and end-user rebates and discounts, included within current accrued liabilities in the consolidated balance sheets. |
(2) |
Provisions are net revenue reductions recorded and includes differences between estimates and actual incentives earned. |
Significant components of our accrued sales incentives programs are as follows: Volume-based incentives charged to gross revenues in fiscal 2016, 2015 and 2014, amounted to $1.9 million, $0.6 million and $0.8 million, respectively. Distributor rebate incentives charged to gross revenues in fiscal 2016, 2015 and 2014, amounted to $0.1 million, $4.9 million and $0, respectively. End-user rebates and discounts charged to gross revenues in fiscal 2016, 2015 and 2014, amounted to $7.6 million, $3.7 million and $1.1 million, respectively.
Royalty Revenues. Royalties are typically based on licensees’ net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured, such as upon the receipt of a royalty statement from the licensee. Our royalty revenue depends on the licensees’ use of our technology, and therefore, may vary from period to period and impact our revenues during a quarter.
Allowance for Doubtful Accounts. We recognize revenue when collection from the customer is reasonably assured. We maintain an allowance for doubtful accounts based on our assessment of the collectibility of the amounts owed to us by our customers. We regularly review the allowance and consider the following factors in determining the level of allowance required: the customer’s payment history, the age of the receivable balance, the credit quality of our customers, the general financial condition of our customer base and other factors that may affect the customers’ ability to pay. An additional allowance is recorded based on certain percentages of our aged receivables, using historical experience to estimate the potential uncollectible. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. If our actual collections experience changes, revisions to our allowances may be required, which could adversely affect our operating income.
Fair Value Measurements. We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. As of March 31, 2016, our investments in cash equivalents, which we classified as available-for-sale, totaled $9.8 million, using Level 1 inputs since these investments are traded in an active market. The valuations are based on quoted prices of the underlying security that are readily and regularly available in an active market, and accordingly, a significant degree of judgment is not required.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. As of March 31, 2016, our available-for-sale investments in corporate bonds, totaled $7.0 million, using Level 2 inputs, based on market pricing and other observable market inputs for similar securities obtained from various third party data providers.
Level 3: Unobservable inputs that are supported by little or no market data and require the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. As of March 31, 2016 and 2015, we did not have any Level 3 financial assets or liabilities measured at fair value on a recurring basis.
Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are developed to reflect those that market participants would use in pricing the asset or liability at the measurement date. At March 31, 2016, we also had $56.9 million in investments classified as held-to-maturity and carried at amortized cost.
Investment in Unconsolidated Affiliate. In February 2011, we purchased a 15% equity ownership interest in Scandinavian Micro Biodevices APS (“SMB”) for $2.8 million in cash. We use the equity method to account for our investment in this entity because we do not control it, but have the ability to exercise significant influence over it. Equity method investments are recorded at original cost and adjusted periodically to recognize (1) our proportionate share of the investees’ net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value. We eliminate all intercompany transactions in accounting for our equity method investments. We record our proportionate share of the investees’ net income or losses in “Interest and other income (expense), net” on our consolidated statements of income. At March 31, 2016 and 2015, our investment in unconsolidated affiliate totaled $2.7 million and $2.7 million, respectively.
We assess the potential impairment of our equity method investments when indicators such as a history of operating losses, a negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. To date, since our investment in SMB, we have not recorded an impairment charge on this investment.
Warranty Reserves. We provide for the estimated future costs to be incurred under our standard warranty obligation on our instruments. Our standard warranty obligation on instruments ranges from one to five years, depending on the specific product. The estimated contractual warranty obligation is recorded when the related revenue is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated. Cost of revenues reflects estimated warranty expense for instruments sold in the current period and any adjustments in estimated warranty expense for the installed base under our standard warranty obligation based on our quarterly evaluation of service experience. While we engage in product quality programs and processes, including monitoring and evaluating the quality of our suppliers, our estimated accrual for warranty exposure is based on our historical experience as to product failures, estimated product failure rates, estimated repair costs, material usage and freight incurred in repairing the instrument after failure and known design changes under the warranty plan. Effective October 2013, we prospectively changed our standard warranty obligations on certain instruments sold from three to five years. The increase in the standard warranty period did not result in a material impact on our cost of revenues or our accrued warranty costs during fiscal 2016, 2015 and 2014.
We also provide for the estimated future costs to be incurred under our standard warranty obligation on our reagent discs. A provision for defective reagent discs is recorded and classified as a current liability when the related sale is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated, at which time they are included in cost of revenues. The warranty cost includes the replacement costs and freight of a defective reagent disc.
As of March 31, 2016, our current portion of warranty reserves for instruments and reagent discs totaled $1.3 million and our non‑current portion of warranty reserves for instruments totaled $1.9 million, which reflects our estimate of warranty obligations based on the estimated product failure rates, the number of instruments in standard warranty, estimated repair and related costs of instruments, and an estimate of defective reagent discs and replacement and related costs of a defective reagent disc. Total change in accrued warranty reserve from March 31, 2015 to March 31, 2016, was insignificant.
For fiscal 2016, 2015 and 2014, the provision for warranty expense related to instruments was $1.2 million, $2.4 million and $1.6 million, respectively. During fiscal 2016, we recorded an adjustment to pre-existing warranties of $0.2 million, which reduced our warranty reserves and our cost of revenues, based on our historical experience and our projected performance rate of instruments. The change in the provision for warranty expense related to instruments during fiscal 2016, as compared to fiscal 2015, was primarily attributable to a decrease in the number of instruments under standard warranty. The increase in the provision for warranty expense related to instruments during fiscal 2015, as compared to fiscal 2014 was primarily attributable to an increase in the number of instruments under standard warranty.
For fiscal 2016, 2015 and 2014, the provision for warranty expense related to replacement of defective reagent discs was $0.4 million, $0.2 million and $0.5 million, respectively. The changes in the provision for warranty expense related to reagent discs was primarily due to our judgment of the estimated product failure rate of reagent discs under warranty.
Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated. We review the historical warranty cost trends and analyze the adequacy of the ending accrual balance of warranty reserves each quarter. The determination of warranty reserves requires us to make estimates of the estimated product failure rate, expected costs to repair or replace the instruments and to replace defective reagent discs under warranty. If actual repair or replacement costs of instruments or replacement costs of reagent discs differ significantly from our estimates, adjustments to cost of revenues may be required. Additionally, if factors change and we revise our assumptions on the product failure rate of instruments or reagent discs, then our warranty reserves and cost of revenues could be materially impacted in the quarter of such revision, as well as in following quarters.
Inventories. We state inventories at the lower of cost or market, cost being determined using standard costs which approximate actual costs using the first-in, first-out (FIFO) method. Inventories include material, labor and manufacturing overhead. We establish provisions for excess, obsolete and unusable inventories after evaluation of future demand of our products and market conditions. If future demand or actual market conditions are less favorable than those estimated by management or if a significant amount of the material were to become unusable, additional inventory write-downs may be required, which would have a negative effect on our operating income.
Intangible Assets. Intangible assets, consisted of customer relationships, tradename, licenses and other rights acquired from third parties, are presented at cost, net of accumulated amortization. The intangible assets are amortized using the straight-line method over their estimated useful lives of 2-10 years, which approximates the economic benefit. If our underlying assumptions regarding the estimated useful life of an intangible asset change, then the amortization period, amortization expense and the carrying value for such asset would be adjusted accordingly. During fiscal 2016, 2015 and 2014, our changes in estimated useful life of intangible assets were not significant, except as noted below in “Valuation of Long-Lived Assets.”
Valuation of Long-Lived Assets. We evaluate the carrying value of our long-lived assets, such as property and equipment and amortized intangible assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate that the carrying amount of an asset may not be fully recoverable or their useful lives are no longer appropriate. We look to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than the carrying amount. If impairment is determined to exist, any related impairment loss is calculated based on fair value and long-lived assets are written down to their respective fair values. During fiscal 2016, 2015 and 2014, we recognized impairment charges on long-lived assets of $13,000, $1.9 million and $0, respectively. The impairment charges on our long-lived assets in fiscal 2015 were in relation to the property and equipment and intangible assets of our AVRL business, which has been offset against the gain from the sale of AVRL on the consolidated statement of income for fiscal 2015.
Income Taxes. We account for income taxes using the liability method under which deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be recovered.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. At March 31, 2016 and 2015, we had no significant uncertain tax positions. Our policy is to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes. In fiscal 2016, 2015 and 2014, we did not recognize any interest or penalties related to uncertain tax positions in the consolidated statements of income, and at March 31, 2016 and 2015, we had no accrued interest or penalties.
Share-Based Compensation Expense. We account for share-based compensation arrangements using the fair value method. We recognize share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors. As required by fair value provisions of share-based compensation, employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures. The forfeiture rate is estimated based on historical data of our share-based compensation awards that are granted and cancelled prior to vesting and upon historical experience of employee turnover. Changes in estimated forfeiture rates and differences between estimated forfeiture rates and actual experience may result in significant, unanticipated increases or decreases in share-based compensation expense from period to period. To the extent we revise our estimate of the forfeiture rate in the future, our share-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters.
Prior to fiscal 2007, we granted stock option awards to employees and directors as part of our share-based compensation program. We have not granted any stock options since the beginning of fiscal 2007. We have recognized compensation expense for stock options granted during the requisite service period of the stock option. As of March 31, 2016, we had no unrecognized compensation expense related to stock options granted.
Since fiscal 2007, we have granted restricted stock unit awards to employees and directors as part of our share-based compensation program. Restricted stock unit awards to consultants have been insignificant. Awards of restricted stock units are issued at no cost to the recipient and may have time-based vesting criteria, or a combination of time-based and performance-based vesting criteria, as described below.
Restricted Stock Unit Awards (Time Vesting)
The fair value of restricted stock unit awards with only time-based vesting terms, which we refer to as restricted stock unit awards (time vesting), used in our expense recognition method is measured based on the number of shares granted and the closing market price of our common stock on the date of grant. Such value is recognized as an expense over the corresponding requisite service period. The share-based compensation expense is reduced by an estimate of the restricted stock unit awards that are expected to be forfeited. The forfeiture estimate is based on historical data and other factors, and compensation expense is adjusted for actual results. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.
Restricted Stock Unit Awards (Performance Vesting)
We also began granting restricted stock unit awards subject to performance vesting criteria, which we refer to as restricted stock unit awards (performance vesting), to our executive officers starting in fiscal 2013. Restricted stock unit awards (performance vesting) consist of the right to receive shares of common stock, subject to achievement of time-based criteria and certain corporate performance-related goals over a specified period, as established by the Compensation Committee of our Board of Directors (the “Compensation Committee”). For restricted stock units subject to performance vesting, we recognize any related share-based compensation expense ratably over the service period based on the most probable outcome of the performance condition. The fair value of our restricted stock unit awards (performance vesting) used in our expense recognition method is measured based on the number of shares granted, the closing market price of our common stock on the date of grant and an estimate of the probability of the achievement of the performance goals. The amount of share-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
In fiscal 2014, 2015, 2016 and 2017, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) described below. These restricted stock units vest only if both of the following criteria are satisfied: (1) our consolidated income from operations during the fiscal year in which grant occurred, as certified by the Compensation Committee, is in excess of the applicable target amount described below; and (2) the recipient remains in the continuous service of the Company until the applicable vesting date set forth as follows:
• |
25% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; |
• |
25% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant; |
• |
25% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; and |
• |
25% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant. |
In April 2013, in consideration of the grant of restricted stock unit awards (performance vesting) to our executive officers in fiscal 2014, 75% of the remaining restricted stock unit awards (performance vesting) to our executive officers that were granted in fiscal 2013, which consisted of the second, third and fourth tranches, were cancelled. As a result, these restricted stock units are no longer outstanding and were not deemed granted for accounting purposes because each annual performance target was to be set at the start of each respective single-fiscal year performance period in accordance with ASC 718-10-55-95.
Fiscal 2014 Performance RSUs. In April 2013, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 129,000 shares of common stock to our executive officers that contained the foregoing time-based and performance-based vesting terms (the “FY2014 Performance RSUs”). The aggregate estimated grant date fair value of the FY2014 Performance RSUs was $5.5 million based on the closing market price of our common stock on the date of grant.
At March 31, 2014, we reviewed each of the underlying performance targets related to the outstanding FY2014 Performance RSUs and determined that it was not probable that the FY2014 Performance RSUs would vest and as a result did not record share-based compensation related to these awards during fiscal 2014. On April 23, 2014, the Compensation Committee determined that the Company’s consolidated income from operations for fiscal 2014 was below 90% of target and, accordingly, the FY2014 Performance RSUs did not vest and were cancelled.
Fiscal 2015 Performance RSUs. In April 2014, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 172,000 shares of common stock to our executive officers that contained the foregoing time-based and performance-based vesting terms (the “FY2015 Performance RSUs”). The aggregate estimated grant date fair value of the FY2015 Performance RSUs was $7.0 million based on the closing market price of our common stock on the date of grant. During fiscal 2016 and 2015, we recorded share-based compensation expense ratably over the vesting terms of the FY2015 Performance RSUs, as we determined that the performance targets would be met.
Fiscal 2016 Performance RSUs. In April 2015, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 187,000 shares of common stock to our executive officers and to certain of our employees that contained the foregoing time-based and performance-based vesting terms (the “FY2016 Performance RSUs”). The aggregate estimated grant date fair value of the FY2016 Performance RSUs was $10.3 million based on the closing market price of our common stock on the date of grant. During fiscal 2016, we recorded share-based compensation expense ratably over the vesting terms of the FY2015 Performance RSUs, as we determined that the performance targets would be met.
Fiscal 2017 Performance RSUs. In April 2016, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 152,000 shares of common stock to our executive officers and to certain of our employees (the “FY2017 Performance RSUs”) that contained the foregoing time-based and performance-based vesting terms, except that the restricted stock units granted to our CEO, Mr. Clinton Severson, vest as follows:
• |
approximately 18% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; |
• |
approximately 18% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant; |
• |
approximately 32% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; and |
• |
approximately 32% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant. |
The aggregate estimated grant date fair value of the FY2017 Performance RSUs was $6.8 million based on the closing market price of our common stock on the date of grant.
Share-based compensation expense has had a material impact on our earnings per share and on our consolidated financial statements for fiscal 2016, 2015 and 2014. The impact of share-based compensation expense on our consolidated financial results is disclosed in Note 15 in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report. We expect that share-based compensation will materially impact our consolidated financial statements in the foreseeable future. As of March 31, 2016, our total unrecognized compensation expense related to restricted stock unit awards (time vesting) and restricted stock unit awards (performance vesting) granted to employees and directors totaled $24.1 million, which expense is expected to be recognized over a weighted average service period of 1.9 to 2.0 years. Excluding forfeitures, we estimate expense recognition of restricted stock units with time-based vesting criteria over the requisite service period of the award, for awards granted and unvested as of March 31, 2016 as follows: $10.7 million in fiscal 2017, $9.6 million in fiscal 2018, $7.6 million in fiscal 2019 and $1.2 million in fiscal 2020.
Results of Operations
Previously reported financial information has been revised to reflect the reclassification of our AVRL business within our veterinary market segment as discontinued operations. See Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Total Revenues – Continuing Operations
Revenues by Product Category. The following table and the discussion that follows, presents revenues by product category and represents our results from continuing operations during fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
Revenues by Product Category
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Instruments (1)
|
|
$
|
43,042
|
|
|
$
|
48,649
|
|
|
$
|
37,539
|
|
|
$
|
(5,607
|
)
|
|
|
(12
|
)%
|
|
$
|
11,110
|
|
|
|
30
|
%
|
Percentage of total revenues
|
|
|
20
|
%
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables (2)
|
|
|
165,025
|
|
|
|
144,446
|
|
|
|
117,533
|
|
|
|
20,579
|
|
|
|
14
|
%
|
|
|
26,913
|
|
|
|
23
|
%
|
Percentage of total revenues
|
|
|
75
|
%
|
|
|
71
|
%
|
|
|
73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products (3)
|
|
|
10,760
|
|
|
|
9,348
|
|
|
|
6,809
|
|
|
|
1,412
|
|
|
|
15
|
%
|
|
|
2,539
|
|
|
|
37
|
%
|
Percentage of total revenues
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
|
218,827
|
|
|
|
202,443
|
|
|
|
161,881
|
|
|
|
16,384
|
|
|
|
8
|
%
|
|
|
40,562
|
|
|
|
25
|
%
|
Percentage of total revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and licensing revenues
|
|
|
74
|
|
|
|
150
|
|
|
|
150
|
|
|
|
(76
|
)
|
|
|
(51
|
)%
|
|
|
-
|
|
|
|
-
|
%
|
Percentage of total revenues
|
|
<1%
|
|
|
<1%
|
|
|
<1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
218,901
|
|
|
$
|
202,593
|
|
|
$
|
162,031
|
|
|
$
|
16,308
|
|
|
|
8
|
%
|
|
$
|
40,562
|
|
|
|
25
|
%
|
(1) |
Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i-STAT analyzers. |
(2) |
Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i-STAT cartridges and rapid tests. |
(3) |
Other products include products using the Orbos process and extended maintenance agreements. |
Revenues by Geographic Region. The following table and the discussion that follows, presents our revenues by geographic region and represents our results from continuing operations during fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
Revenues by Geographic Region
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
North America
|
|
$
|
175,019
|
|
|
$
|
163,308
|
|
|
$
|
126,768
|
|
|
$
|
11,711
|
|
|
|
7
|
%
|
|
$
|
36,540
|
|
|
|
29
|
%
|
Percentage of total revenues
|
|
|
80
|
%
|
|
|
81
|
%
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
31,262
|
|
|
|
30,422
|
|
|
|
27,161
|
|
|
|
840
|
|
|
|
3
|
%
|
|
|
3,261
|
|
|
|
12
|
%
|
Percentage of total revenues
|
|
|
14
|
%
|
|
|
15
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific and rest of the world
|
|
|
12,620
|
|
|
|
8,863
|
|
|
|
8,102
|
|
|
|
3,757
|
|
|
|
42
|
%
|
|
|
761
|
|
|
|
9
|
%
|
Percentage of total revenues
|
|
|
6
|
%
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
218,901
|
|
|
$
|
202,593
|
|
|
$
|
162,031
|
|
|
$
|
16,308
|
|
|
|
8
|
%
|
|
$
|
40,562
|
|
|
|
25
|
%
|
Fiscal 2016 Compared to Fiscal 2015
North America. During fiscal 2016, total revenues in North America increased by 7%, or $11.7 million, as compared to fiscal 2015. The change in total revenues in North America was primarily attributable to the following:
• |
Total revenues from our Piccolo chemistry analyzers and medical reagent discs in North America increased by 3%, or $0.6 million, primarily attributable to an increase in medical reagent discs sold to Abbott, resulting from an expanded installed base of Piccolo chemistry analyzers, partially offset by a decrease in the unit sales of Piccolo chemistry analyzers sold to Abbott, which were higher in the third quarter of fiscal 2015 due to the Ebola epidemic outbreak in late 2014. |
• |
Total sales of our VetScan chemistry analyzers and veterinary reagent discs in North America increased by 2%, or $1.9 million, primarily attributable to an increase in the unit sales of veterinary reagent discs due to an expanded installed base of VetScan chemistry analyzers. The increase was partially offset by (a) a decrease in the unit sales of VetScan chemistry analyzers due to higher sales in the prior period to VCA’s Animal Hospitals resulting from a product supply agreement that we entered into in May 2014 and (b) higher sales of VetScan chemistry analyzers in the third quarter of fiscal 2015 from initial stocking orders to two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. |
• |
Total sales of our VetScan hematology instruments and hematology reagent kits in North America increased by 8%, or $1.9 million, primarily attributable to an increase in the unit sales of hematology reagent kits due to an expanded installed base of hematology instruments. |
• |
Total sales of our VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related consumables and VetScan rapid tests in North America increased by 31%, or $7.3 million, primarily attributable to (a) higher sales of our VetScan Feline FeLV/FIV Rapid Test, which we introduced in fiscal 2015, (b) an increase in the unit sales of VetScan Canine Heartworm Rapid Test Kit and (c) an increase in the sales of VetScan rapid tests resulting from two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. |
Europe. During fiscal 2016, total revenues in Europe increased by 3%, or $0.8 million, as compared to fiscal 2015, primarily attributable to an increase in rental income from veterinary instruments rented by customers in the United Kingdom starting in the third quarter of fiscal 2015, resulting from our acquisition of QCR and Trio Diagnostics. The increase was partially offset by a decrease in revenues from veterinary reagent discs due to the impact of a lower exchange rate between the Euro and U.S. dollar.
Asia Pacific and rest of the world. During fiscal 2016, total revenues in Asia Pacific and rest of the world increased by 42%, or $3.8 million, as compared to fiscal 2015. Revenues from Piccolo chemistry analyzers and medical reagent discs increased by 160%, or $2.4 million, primarily attributable to sales of Piccolo chemistry analyzers to Fuzhou Kelian Medical Devices, Ltd., a point-of-care diagnostics distributor based in China. Revenues from veterinary instruments increased by 28%, or $0.7 million, primarily attributable to an increase in the unit sales of VetScan chemistry analyzers and VetScan hematology instruments to various distributors. Revenues from veterinary consumables increased by 13%, or $0.6 million, primarily attributable to an increase in the unit sales of veterinary reagent discs to a distributor.
Significant concentrations. During fiscal 2016, three distributors in the United States, MWI, Patterson Companies, Inc. and Abbott, accounted for 20%, 11% and 10%, respectively, and one distributor in both the United States and Europe, Henry Schein, Inc., accounted for 13% of our total worldwide revenues. Two distributors in the United States, MWI and Abbott, accounted for 19% and 11%, respectively, of our total worldwide revenues in fiscal 2015. Starting in the second quarter of fiscal 2016, our revenues from Patterson Companies, Inc. include both Patterson’s veterinary business and Animal Health International, Inc., as a result of Patterson’s acquisition of Animal Health International, Inc. Starting in fiscal 2016, our revenues from Henry Schein, Inc., include both Henry Schein, Inc. and scil animal care company GmbH, as a result of Henry Schein Inc.’s acquisition of scil animal care company GmbH in Europe.
Fiscal 2015 Compared to Fiscal 2014
North America. During fiscal 2015, total revenues in North America increased by 29%, or $36.5 million, as compared to fiscal 2014. The change in total revenues in North America was primarily attributable to the following:
• |
Total revenues from our Piccolo chemistry analyzers and medical reagent discs in North America increased by 29%, or $5.4 million, primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs sold to Abbott. The increase in the sales volume of medical reagent discs sold was primarily attributable to an expanded installed base of Piccolo chemistry analyzers. |
• |
Total sales of our VetScan chemistry analyzers and veterinary reagent discs in North America increased by 36%, or $22.4 million, primarily attributable to (a) sales of VetScan chemistry analyzers to VCA’s Animal Hospitals resulting from a product supply agreement that we entered into in May 2014, (b) sales of VetScan chemistry analyzers to Henry Schein Animal Health and Patterson Veterinary Supply, both resulting from distribution agreements that we entered in October 2014 and (c) an increase in the sales volume of veterinary reagent discs due to an expanded installed base. These increases were partially offset by distributor rebate incentives programs offered in connection with sales of VetScan chemistry analyzers during fiscal 2015. |
• |
Total sales of our VetScan hematology instruments and hematology reagent kits in North America increased by 36%, or $6.1 million, primarily attributable to (a) sales of VetScan hematology instruments as initial stocking orders to Henry Schein Animal Health and Patterson Veterinary Supply during the second half of fiscal 2015 and (b) an increase in the sales volume of hematology reagent kits due to an expanded installed base. These increases were partially offset by (a) lower unit sales of VetScan hematology instruments in the first half of fiscal 2015 to balance the inventory level in the distribution channel, sales of which were in line with in-clinic sales starting in the third quarter of fiscal 2015 and (b) distributor rebate incentives programs offered in connection with sales of VetScan hematology instruments during fiscal 2015. |
• |
Total sales of our VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related consumables and VetScan rapid tests in North America increased by 3%, or $0.7 million, primarily attributable to (a) sales of two new rapid tests, VetScan Feline FeLV/FIV Rapid Test and VetScan Canine Ehrlichia Rapid Test during fiscal 2015 and (b) sales of VetScan rapid tests to Henry Schein Animal Health and Patterson Veterinary Supply during the second half of fiscal 2015. These increases were partially offset by lower unit sales of VetScan i-STAT analyzers in the first half of fiscal 2015 to balance the inventory level in the distribution channel, sales of which were in line with in-clinic sales starting in the third quarter of fiscal 2015. |
• |
Revenues from other products in North America increased by 32%, or $1.9 million, primarily attributable to deferred revenue recognized ratably over the life of extended maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments. In October 2013, we prospectively changed the standard warranty obligations on certain instruments sold from three to five years, which resulted in a decrease in maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments. |
Europe. During fiscal 2015, total revenues in Europe increased by 12%, or $3.3 million, as compared to fiscal 2014. The change in total revenues in Europe was primarily attributable to the following:
• |
Revenues from Piccolo chemistry analyzers and medical reagent discs increased by 16%, or $1.0 million, primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers to various distributors during fiscal 2015. |
• |
Revenues from VetScan chemistry analyzers and veterinary reagent discs increased by 8%, or $1.4 million, primarily attributable to an increase in the sales volume of veterinary reagent discs due to an expanded installed base, partially offset by (a) lower average selling prices of VetScan chemistry analyzers and (b) the impact of a lower exchange rate between the Euro and U.S. dollar during the second half of fiscal 2015 resulting in a decrease in the dollar value of the Euro sales of veterinary reagent discs compared to the rate in effect in fiscal 2014. |
• |
Revenues from other products increased by 80%, or $0.6 million, primarily due to an increase in other veterinary products sold to customers in the United Kingdom. |
Asia Pacific and rest of the world. During fiscal 2015, total revenues in Asia Pacific and rest of the world increased by 9%, or $0.8 million, as compared to fiscal 2014. The change in total revenues in Asia Pacific and rest of the world was primarily attributable to the following:
• |
Revenues from Piccolo chemistry analyzers and medical reagent discs increased by 49%, or $0.5 million, primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers to two distributors and an increase in the sales volume of medical reagent discs to two distributors. |
• |
Revenues from veterinary instruments decreased by 11%, or $0.3 million, primarily attributable to a decrease in the sales volume of VetScan chemistry analyzers to various distributors. Revenues from veterinary consumables increased by 14%, or $0.6 million, primarily attributable to an increase in the sales volume of veterinary reagent discs to a distributor. |
Significant concentrations. Two distributors in the United States, MWI and Abbott, accounted for 19% and 11%, respectively, of our total worldwide revenues in fiscal 2015. Two distributors in the United States, MWI and Abbott, accounted for 19% and 10%, respectively, of our total worldwide revenues in fiscal 2014.
Segment Results – Continuing Operations
Total Revenues, Cost of Revenues and Gross Profit by Segment. We identify our reportable segments as those customer groups that represent more than 10% of our combined revenue or gross profit or loss of all reported operating segments. We manage our business on the basis of the following two reportable segments: (i) the medical market and (ii) the veterinary market, which are based on the products sold by market and customer group.
Fiscal 2016 Compared to Fiscal 2015
The following table and the discussion that follows presents revenues, cost of revenues, gross profit and percentage of revenues by operating segments and from certain unallocated items and represents our results from continuing operations for fiscal 2016 and 2015 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
Percent of
Revenues (1)
|
|
|
2015
|
|
|
Percent of
Revenues (1)
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
37,845
|
|
|
|
100
|
%
|
|
$
|
35,364
|
|
|
|
100
|
%
|
|
$
|
2,481
|
|
|
|
7
|
%
|
Percentage of total revenues
|
|
|
17
|
%
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
177,667
|
|
|
|
100
|
%
|
|
|
164,018
|
|
|
|
100
|
%
|
|
|
13,649
|
|
|
|
8
|
%
|
Percentage of total revenues
|
|
|
81
|
%
|
|
|
|
|
|
|
81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (2)
|
|
|
3,389
|
|
|
|
|
|
|
|
3,211
|
|
|
|
|
|
|
|
178
|
|
|
|
6
|
%
|
Percentage of total revenues
|
|
|
2
|
%
|
|
|
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
218,901
|
|
|
|
|
|
|
|
202,593
|
|
|
|
|
|
|
|
16,308
|
|
|
|
8
|
%
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
19,832
|
|
|
|
52
|
%
|
|
|
18,730
|
|
|
|
53
|
%
|
|
|
1,102
|
|
|
|
6
|
%
|
Veterinary Market
|
|
|
75,688
|
|
|
|
43
|
%
|
|
|
74,752
|
|
|
|
46
|
%
|
|
|
936
|
|
|
|
1
|
%
|
Other (2)
|
|
|
129
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(9
|
)%
|
Total cost of revenues
|
|
|
95,649
|
|
|
|
|
|
|
|
93,623
|
|
|
|
|
|
|
|
2,026
|
|
|
|
2
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
18,013
|
|
|
|
48
|
%
|
|
|
16,634
|
|
|
|
47
|
%
|
|
|
1,379
|
|
|
|
8
|
%
|
Veterinary Market
|
|
|
101,979
|
|
|
|
57
|
%
|
|
|
89,266
|
|
|
|
54
|
%
|
|
|
12,713
|
|
|
|
14
|
%
|
Other (2)
|
|
|
3,260
|
|
|
|
|
|
|
|
3,070
|
|
|
|
|
|
|
|
190
|
|
|
|
6
|
%
|
Gross profit
|
|
$
|
123,252
|
|
|
|
|
|
|
$
|
108,970
|
|
|
|
|
|
|
$
|
14,282
|
|
|
|
13
|
%
|
(1)
|
The percentage reported is based on revenues by operating segment.
|
(2)
|
Represents unallocated items, not specifically identified to any particular business segment.
|
Medical Market
Revenues for Medical Market Segment
During fiscal 2016, total revenues in the medical market increased by 7%, or $2.5 million, as compared to fiscal 2015. The change in the medical market segment was primarily attributable to the following:
• |
Total revenues from Piccolo chemistry analyzers decreased by 4%, or $0.4 million, during fiscal 2016 as compared to fiscal 2015, primarily attributable to a decrease in the unit sales of Piccolo chemistry analyzers sold to Abbott, which were higher in the third quarter of fiscal 2015 due to the Ebola epidemic outbreak in late 2014. The decrease was partially offset by sales of Piccolo chemistry analyzers to Fuzhou Kelian Medical Devices, Ltd., a point-of-care diagnostics distributor based in China, during the third quarter of fiscal 2016. |
• |
Total revenues from medical reagent discs increased by 14%, or $3.1 million, during fiscal 2016 as compared to fiscal 2015, primarily attributable to an increase in the sales volume of medical reagent discs sold in North America to Abbott, resulting from an expanded installed base of Piccolo chemistry analyzers. |
Gross Profit for Medical Market Segment
Gross profit for the medical market segment increased by 8%, or $1.4 million, during fiscal 2016 as compared to fiscal 2015. Gross profit percentages for the medical market segment during fiscal 2016 and 2015 were 48% and 47%, respectively. In absolute dollars, the increase in gross profit was primarily attributable to an increase in the unit sales of medical reagent discs, partially offset by lower average selling prices of Piccolo chemistry analyzers. The increase in gross profit percentage was impacted by an increase in the unit sales of medical reagent discs, which have a higher margin contribution.
Veterinary Market
Revenues for Veterinary Market Segment
During fiscal 2016, total revenues in the veterinary market increased by 8%, or $13.6 million, as compared to fiscal 2015. The change in the veterinary market segment was primarily attributable to the following:
• |
Total revenues from veterinary instruments decreased by 14%, or $5.2 million, during fiscal 2016 as compared to fiscal 2015, primarily attributable to (a) a decrease in the unit sales of VetScan chemistry analyzers due to higher sales in the prior period to VCA’s Animal Hospitals resulting from a product supply agreement that we entered into in May 2014 and (b) higher sales of VetScan chemistry analyzers in the third quarter of fiscal 2015 from initial stocking orders to two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. These decreases were partially offset by an increase in the unit sales of VetScan chemistry analyzers and VetScan hematology instruments to various distributors in Asia Pacific and rest of the world. |
• |
Total revenues from consumables in the veterinary market increased by 14%, or $17.5 million, during fiscal 2016 as compared to fiscal 2015, primarily attributable to (a) an increase in the unit sales of veterinary reagent discs and hematology reagent kits in North America due to an expanded instrument installed base, (b) an increase in the unit sales of veterinary reagent discs to a distributor in Asia Pacific and rest of the world, (c) higher sales of our VetScan Feline FeLV/FIV Rapid Test, which we introduced in fiscal 2015, (d) an increase in the unit sales of VetScan Canine Heartworm Rapid Test Kit and (e) an increase in the sales of VetScan rapid tests in North America resulting from two additional distributors, Henry Schein Animal Health and Patterson Companies, Inc., starting in the third quarter of fiscal 2015. These increases were partially offset by a decrease in revenues from veterinary reagent discs due to the impact of a lower exchange rate between the Euro and U.S. dollar. |
• |
Total revenues from other products in the veterinary market increased by 32%, or $1.4 million, during fiscal 2016 as compared to fiscal 2015, primarily attributable to an increase in rental income from veterinary instruments rented by customers in the United Kingdom starting in the third quarter of fiscal 2015, resulting from our acquisition of QCR and Trio Diagnostics. |
Gross Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased by 14%, or $12.7 million, during fiscal 2016 as compared to fiscal 2015. Gross profit percentages for the veterinary market segment during fiscal 2016 and 2015 were 57% and 54%, respectively. In absolute dollars, the net increase in gross profit was primarily attributable to (a) an increase in the unit sales of veterinary reagent discs, VetScan hematology reagent kits and VetScan rapid tests and (b) lower manufacturing costs of veterinary reagent discs. The increase in gross profit percentage was impacted by changes in our product mix and an increase in the unit sales of veterinary reagent discs, which have a higher margin contribution.
Other
Our other category primarily consists of products sold using our patented Orbos Discrete Lyophilization Process. The change in gross profit in our other category was not significant during fiscal 2016, as compared to fiscal 2015.
Fiscal 2015 Compared to Fiscal 2014
The following table and the discussion that follows presents revenues, cost of revenues, gross profit and percentage of revenues by operating segments and from certain unallocated items and represents our results from continuing operations for fiscal 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
2015
|
|
|
Percent of
Revenues (1)
|
|
|
2014
|
|
|
Percent of
Revenues (1)
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
35,364
|
|
|
|
100
|
%
|
|
$
|
28,134
|
|
|
|
100
|
%
|
|
$
|
7,230
|
|
|
|
26
|
%
|
Percentage of total revenues
|
|
|
17
|
%
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Veterinary Market
|
|
|
164,018
|
|
|
|
100
|
%
|
|
|
130,859
|
|
|
|
100
|
%
|
|
|
33,159
|
|
|
|
25
|
%
|
Percentage of total revenues
|
|
|
81
|
%
|
|
|
|
|
|
|
81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (2)
|
|
|
3,211
|
|
|
|
|
|
|
|
3,038
|
|
|
|
|
|
|
|
173
|
|
|
|
6
|
%
|
Percentage of total revenues
|
|
|
2
|
%
|
|
|
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
202,593
|
|
|
|
|
|
|
|
162,031
|
|
|
|
|
|
|
|
40,562
|
|
|
|
25
|
%
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
18,730
|
|
|
|
53
|
%
|
|
|
15,623
|
|
|
|
56
|
%
|
|
|
3,107
|
|
|
|
20
|
%
|
Veterinary Market
|
|
|
74,752
|
|
|
|
46
|
%
|
|
|
62,350
|
|
|
|
48
|
%
|
|
|
12,402
|
|
|
|
20
|
%
|
Other (2)
|
|
|
141
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
33
|
|
|
|
31
|
%
|
Total cost of revenues
|
|
|
93,623
|
|
|
|
|
|
|
|
78,081
|
|
|
|
|
|
|
|
15,542
|
|
|
|
20
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
16,634
|
|
|
|
47
|
%
|
|
|
12,511
|
|
|
|
44
|
%
|
|
|
4,123
|
|
|
|
33
|
%
|
Veterinary Market
|
|
|
89,266
|
|
|
|
54
|
%
|
|
|
68,509
|
|
|
|
52
|
%
|
|
|
20,757
|
|
|
|
30
|
%
|
Other (2)
|
|
|
3,070
|
|
|
|
|
|
|
|
2,930
|
|
|
|
|
|
|
|
140
|
|
|
|
5
|
%
|
Gross profit
|
|
$
|
108,970
|
|
|
|
|
|
|
$
|
83,950
|
|
|
|
|
|
|
$
|
25,020
|
|
|
|
30
|
%
|
(1) |
The percentage reported is based on revenues by operating segment. |
(2) |
Represents unallocated items, not specifically identified to any particular business segment. |
Medical Market
Revenues for Medical Market Segment
During fiscal 2015, total revenues in the medical market increased by 26%, or $7.2 million, as compared to fiscal 2014. The change in the medical market segment was primarily attributable to the following:
• |
Total revenues from Piccolo chemistry analyzers increased by 75%, or $4.6 million, during fiscal 2015 as compared to fiscal 2014, primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers sold in North America to Abbott, sales to various distributors in Europe and sales to two distributors in Asia Pacific and rest of the world. |
• |
Total revenues from medical reagent discs increased by 12%, or $2.4 million, during fiscal 2015 as compared to fiscal 2014, primarily attributable to an increase in the sales volume of medical reagent discs sold in North America to Abbott as a result of an expanded installed base of Piccolo chemistry analyzers and sales to two distributors in Asia Pacific and rest of the world. |
Gross Profit for Medical Market Segment
Gross profit for the medical market segment increased by 33%, or $4.1 million, during fiscal 2015 as compared to fiscal 2014. Gross profit percentages for the medical market segment during fiscal 2015 and 2014 were 47% and 44%, respectively. In absolute dollars, the increase in gross profit was primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs and lower manufacturing costs of Piccolo chemistry analyzers and medical reagent discs. The increase in gross profit percentage was primarily attributable to an increase in the sales volume of Piccolo chemistry analyzers and medical reagent discs.
Veterinary Market
Revenues for Veterinary Market Segment
During fiscal 2015, total revenues in the veterinary market increased by 25%, or $33.2 million, as compared to fiscal 2014. The change in the veterinary market segment was primarily attributable to the following:
• |
Total revenues from veterinary instruments increased by 21%, or $6.5 million, during fiscal 2015 as compared to fiscal 2014, primarily attributable to (a) sales of VetScan chemistry analyzers to VCA’s Animal Hospitals, (b) sales of VetScan chemistry analyzers to two new distributors, Henry Schein Animal Health and Patterson Veterinary Supply and (c) sales of VetScan hematology instruments as initial stocking orders to Henry Schein Animal Health and Patterson Veterinary Supply during the second half of fiscal 2015. These increases were partially offset by (a) distributor rebate incentives programs offered in connection with sales of VetScan chemistry analyzers and VetScan hematology instruments in North America during fiscal 2015, (b) lower average selling prices of VetScan chemistry analyzers sold in Europe, (c) a decrease in the sales volume of VetScan chemistry analyzers to various distributors in Asia Pacific and rest of the world and (d) lower unit sales of VetScan hematology instruments and VetScan i-STAT analyzers in the first half of fiscal 2015 to balance the inventory level in the distribution channel, sales of which were in line with in-clinic sales starting in the third quarter of fiscal 2015. |
• |
Total revenues from consumables in the veterinary market increased by 25%, or $24.6 million, during fiscal 2015 as compared to fiscal 2014, primarily attributable to (a) an increase in the sales volume of veterinary reagent discs and hematology reagent kits, both due to an expanded installed base in North America, (b) an increase in the sales volume of veterinary reagent discs to a distributor in Asia Pacific and rest of the world, (c) sales of two new rapid tests, VetScan Feline FeLV/FIV Rapid Test and VetScan Canine Ehrlichia Rapid Test during fiscal 2015 and (d) sales of VetScan rapid tests to Henry Schein Animal Health and Patterson Veterinary Supply during the second half of fiscal 2015. These increases were partially offset by the impact of a lower exchange rate between the Euro and U.S. dollar during the second half of fiscal 2015 resulting in a decrease in the dollar value of the Euro sales of veterinary reagent discs compared to the rate in effect in fiscal 2014. |
• |
Total revenues from other products in the veterinary market increased by 95%, or $2.1 million, during fiscal 2015 as compared to fiscal 2014, primarily attributable to (a) deferred revenue recognized ratably over the life of extended maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments and (b) an increase in other veterinary products sold to customers in the United Kingdom. |
Gross Profit for Veterinary Market Segment
Gross profit for the veterinary market segment increased by 30%, or $20.8 million, during fiscal 2015 as compared to fiscal 2014. Gross profit percentages for the veterinary market segment during fiscal 2015 and 2014 were 54% and 52%, respectively. In absolute dollars, the net increase in gross profit was primarily attributable to an increase in the sales volume of VetScan chemistry analyzers and veterinary reagent discs and lower manufacturing costs of VetScan chemistry analyzers and veterinary reagent discs. The increase in gross profit percentage was primarily attributable to an increase in the sales volume of veterinary reagent discs, which have a higher margin contribution.
Other
Our other category primarily consists of products sold using our patented Orbos Discrete Lyophilization Process. The change in gross profit in our other category was not significant during fiscal 2015, as compared to fiscal 2014.
Cost of Revenues – Continuing Operations
The following table and the discussion that follows presents our cost of revenues and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Cost of revenues
|
|
$
|
95,649
|
|
|
$
|
93,623
|
|
|
$
|
78,081
|
|
|
$
|
2,026
|
|
|
|
2
|
%
|
|
$
|
15,542
|
|
|
|
20
|
%
|
Percentage of total revenues
|
|
|
44
|
%
|
|
|
46
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues includes the cost of materials, direct labor costs, costs associated with manufacturing, assembly, packaging, warranty repairs, test and quality assurance for our instruments and consumables and manufacturing overhead, including costs of personnel and equipment associated with manufacturing support.
Fiscal 2016 Compared to Fiscal 2015
The increase in cost of revenues, in absolute dollars, during fiscal 2016, as compared to fiscal 2015, was primarily attributable by an increase in the unit sales of medical and veterinary reagent discs and VetScan rapid tests, partially offset by a decrease in the unit sales of Piccolo and VetScan chemistry analyzers. The decrease in cost of revenues, as a percentage of total revenues, during fiscal 2016 as compared to fiscal 2015, was primarily due to changes in our product mix and an increase in the unit sales of medical and veterinary reagent discs, which have a higher margin contribution.
Fiscal 2015 Compared to Fiscal 2014
The increase in cost of revenues, in absolute dollars, during fiscal 2015, as compared to fiscal 2014, was primarily attributable to higher unit sales of chemistry analyzers and reagent discs, partially offset by lower manufacturing costs of chemistry analyzers and reagent discs. The decrease in cost of revenues, as a percentage of total revenues, during fiscal 2015 as compared to fiscal 2014, was primarily due to an increase in the sales volume of reagent discs.
For our manufacturing operations, while we have an ongoing cost improvement program to reduce material and component costs and are implementing design changes and process improvements, any cost reductions and design and process improvements may be partially offset by increases in other manufacturing costs in subsequent periods.
Gross Profit – Continuing Operations
The following table and the discussion that follows presents our gross profit and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Total gross profit
|
|
$
|
123,252
|
|
|
$
|
108,970
|
|
|
$
|
83,950
|
|
|
$
|
14,282
|
|
|
|
13
|
%
|
|
$
|
25,020
|
|
|
|
30
|
%
|
Total gross margin
|
|
|
56
|
%
|
|
|
54
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Compared to Fiscal 2015
Gross profit in fiscal 2016 increased by 13%, or $14.3 million, as compared to fiscal 2015, primarily attributable to (a) an increase in the unit sales of medical and veterinary reagent discs, VetScan hematology reagent kits and VetScan rapid tests and (b) lower manufacturing costs of veterinary reagent discs, partially offset by lower average selling prices of Piccolo chemistry analyzers. The increase in gross margin was impacted by changes in our product mix and an increase in the unit sales of medical and veterinary reagent discs, which have a higher margin contribution.
Fiscal 2015 Compared to Fiscal 2014
Gross profit in fiscal 2015 increased by 30%, or $25.0 million, as compared to fiscal 2014, primarily attributable to higher unit sales of chemistry analyzers and reagent discs and lower manufacturing costs of chemistry analyzers and reagent discs. The increase in gross profit percentage was primarily attributable to higher unit sales of chemistry analyzers and reagent discs.
Research and Development – Continuing Operations
The following table and the discussion that follows presents our research and development expenses and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Research and development expenses
|
|
$
|
18,388
|
|
|
$
|
16,327
|
|
|
$
|
13,647
|
|
|
$
|
2,061
|
|
|
|
13
|
%
|
|
$
|
2,680
|
|
|
|
20
|
%
|
Percentage of total revenues
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), consulting expenses and materials and related expenses associated with the development of new tests and test methods, clinical trials, product improvements and optimization and enhancement of existing products and expenses related to regulatory and quality assurance. Research and development expenses are primarily based on the project activities planned and the level of spending depends on budgeted expenditures. Research and development expenses for the periods presented above are related primarily to new product development and enhancement of existing products in both the medical and veterinary markets, including the development of electronic connectivity technology and additional projects related to high sensitivity immunoassay.
Fiscal 2016 Compared to Fiscal 2015
Research and development expenses increased by 13%, or $2.1 million, in fiscal 2016 as compared to fiscal 2015. The increase was primarily attributable to expenses related to new product development and enhancement of existing products in both the medical and veterinary markets. Share-based compensation expense included in research and development expenses during fiscal 2016 and 2015 was $2.1 million and $1.6 million, respectively.
Fiscal 2015 Compared to Fiscal 2014
Research and development expenses increased by 20%, or $2.7 million, in fiscal 2015 as compared to fiscal 2014. The increase was primarily attributable to (a) an increase in employee bonus compensation expense due to stronger company performance and meeting significantly more company performance targets in fiscal 2015 as compared to fiscal 2014, (b) an increase in share-based compensation expense and (c) expenses related to new product development and enhancement of existing products in both the medical and veterinary markets, including system feasibility testing costs associated with our research and development diagnostic agreement with LamdaGen Corporation, which we entered into in fiscal 2014. Share-based compensation expense included in research and development expenses during fiscal 2015 and 2014 was $1.6 million and $1.1 million, respectively.
We anticipate the dollar amount of research and development expenses to increase in fiscal 2017 from fiscal 2016 but remain consistent as a percentage of total revenues, as we complete new products and enhance existing products for both the medical and veterinary markets.
Sales and Marketing – Continuing Operations
The following table and the discussion that follows presents our sales and marketing expenses and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
|
Dollar
Change
|
|
|
Percent
Change
|
|
Sales and marketing expenses
|
|
$
|
42,526
|
|
|
$
|
42,147
|
|
|
$
|
34,742
|
|
|
$
|
379
|
|
|
|
1
|
%
|
|
$
|
7,405
|
|
|
|
21
|
%
|
Percentage of total revenues
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), commissions and travel-related expenses for personnel engaged in selling, costs associated with advertising, lead generation, marketing programs, trade shows and services related to customer and technical support.
Fiscal 2016 Compared to Fiscal 2015
Sales and marketing expenses in fiscal 2016 increased by 1%, or $0.4 million, as compared to fiscal 2015, primarily attributable to increased promotional and marketing spending and increased spending due to our acquisition of QCR and Trio Diagnostics in the third quarter of fiscal 2015, partially offset by a decrease in employee bonus and commission expense based on meeting lower company performance targets during fiscal 2016. Share-based compensation expense included in sales and marketing expenses during fiscal 2016 and 2015 was $3.0 million and $2.4 million, respectively.
Fiscal 2015 Compared to Fiscal 2014
Sales and marketing expenses in fiscal 2015 increased by 21%, or $7.4 million, as compared to fiscal 2014. The increase was primarily attributable to increased personnel-related expenses, including an increase in commissions, an increase in employee bonus compensation expense due to stronger company performance and meeting significantly more company performance targets in fiscal 2015 as compared to fiscal 2014 and an increase in share-based compensation expense. Share-based compensation expense included in sales and marketing expenses during fiscal 2015 and 2014 was $2.4 million and $1.9 million, respectively.
General and Administrative – Continuing Operations
The following table and the discussion that follows presents our general and administrative expenses and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change 2015 to 2016
|
|
|
Change 2014 to 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
General and administrative expenses
|
|
$
|
15,984
|
|
|
$
|
16,192
|
|
|
$
|
11,333
|
|
|
$
|
(208
|
)
|
|
|
(1
|
)%
|
|
$
|
4,859
|
|
|
|
43
|
%
|
Percentage of total revenues
|
|
|
7
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist of personnel costs (including salaries, benefits and share-based compensation expense), and expenses for outside professional services related to general corporate functions, including accounting and legal, and other general and administrative expenses.
Fiscal 2016 Compared to Fiscal 2015
General and administrative expenses in fiscal 2016 decreased by 1%, or $0.2 million, as compared to fiscal 2015, primarily attributable to (a) a decrease in employee bonus expense based on meeting lower company performance targets during fiscal 2016 and (b) higher costs in the third quarter of fiscal 2015 due to our acquisition of QCR and Trio, partially offset by an increase in share-based compensation expense. Share-based compensation expense included in general and administrative expenses during fiscal 2016 and 2015 was $4.6 million and $3.6 million, respectively.
Fiscal 2015 Compared to Fiscal 2014
General and administrative expenses in fiscal 2015 increased by 43%, or $4.9 million, as compared to fiscal 2014, primarily attributable to (a) an increase in employee bonus compensation expense due to stronger company performance and meeting significantly more company performance targets in fiscal 2015 as compared to fiscal 2014, (b) costs to acquire QCR and Trio, (c) an increase in share-based compensation expense and (d) other expenses to support our ongoing growth. Share-based compensation expense included in general and administrative expenses during fiscal 2015 and 2014 was $3.6 million and $3.3 million, respectively.
Interest and Other Income (Expense), Net – Continuing Operations
The following table and the discussion that follows presents our interest and other income (expense), net and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
2015-2016
|
|
|
|
2014-2015
|
|
Interest and other income (expense), net
|
|
$
|
793
|
|
|
$
|
(1,262
|
)
|
|
$
|
994
|
|
|
$
|
2,055
|
|
|
$
|
(2,256
|
)
|
Interest and other income (expense), net consists primarily of interest earned on cash and cash equivalents and investments, foreign currency exchange gains and losses and our equity in net income (loss) of an unconsolidated affiliate.
Fiscal 2016 Compared to Fiscal 2015
Interest and other income (expense), net primarily consisted of foreign currency gains and (losses) of $0.1 million and $(1.8) million for fiscal 2016 and fiscal 2015, respectively, primarily attributable to foreign currency exchange rate fluctuations.
Fiscal 2015 Compared to Fiscal 2014
Interest and other income (expense), net primarily consisted of foreign currency gains and (losses) of $(1.8) million and $0.5 million for fiscal 2015 and fiscal 2014, respectively. The foreign currency exchange loss in fiscal 2015 was primarily attributable to net unfavorable foreign currency exchange rates due to the effect of a strong U.S. dollar.
Income Tax Provision – Continuing Operations
The following table and the discussion that follows presents our income tax provision and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands, except percentages):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax provision
|
|
$
|
16,073
|
|
|
$
|
12,239
|
|
|
$
|
8,993
|
|
Effective tax rate
|
|
|
34
|
%
|
|
|
37
|
%
|
|
|
36
|
%
|
Fiscal 2016 Compared to Fiscal 2015
For fiscal 2016 and 2015, our income tax provision was $16.1 million, based on an effective tax rate of 34%, and $12.2 million, based on an effective tax rate of 37%, respectively. The dollar increase in the income tax provision during fiscal 2016, as compared to fiscal 2015, was attributable to higher pre-tax income. The decrease in the effective tax rate during fiscal 2016, as compared to fiscal 2015, was impacted by the retroactive reinstatement of federal research and development tax credits, foreign tax credits which reduce federal income tax expenses and a reduction in non-deductible compensation.
We expect our effective tax rate will be approximately 37% for federal, foreign and various state tax jurisdictions in fiscal 2017, compared to an effective tax rate of 34% in fiscal 2016. The expected effective tax rate of 37% in fiscal 2017 is primarily due to a reduction in federal research and development tax credits, a reduction in foreign tax credits and an increase in non-deductible compensation.
Fiscal 2015 Compared to Fiscal 2014
For fiscal 2015, our income tax provision was $12.2 million, based on an effective tax rate of 37%, as compared to $9.0 million, based on an effective tax rate of 36%, for fiscal 2014. The dollar increase in the income tax provision during fiscal 2015, as compared to fiscal 2014, was attributable to higher pre-tax income. The increase in the effective tax rate during fiscal 2015, as compared to fiscal 2014, was primarily attributable to an increase in non-recurring non-deductible expenses.
We did not have any unrecognized tax benefits as of March 31, 2016. During fiscal 2016, 2015 and 2014, we did not recognize any interest or penalties related to unrecognized tax benefits.
Discontinued Operations
On March 18, 2015, we entered into an asset purchase agreement (“APA”) with Antech pursuant to which we sold substantially all of the assets of our AVRL business. The sale transaction closed on March 31, 2015. The total purchase price under the APA was $21.0 million in cash. During the fourth quarter of fiscal 2015, we received $20.1 million in cash proceeds and we recorded a gain on sale of discontinued operations, net of tax, of $7.7 million. During the fourth quarter of fiscal 2016, we recorded a pre-tax gain of $0.9 million ($0.6 million after-tax) on sale of discontinued operations, upon meeting certain conditions by the first anniversary of the closing date.
Results from discontinued operations, net of tax, were net losses of $3,000, $1.2 million and $2.0 million in fiscal 2016, 2015 and 2014, respectively. See Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Liquidity and Capital Resources – Continuing and Discontinued Operations
Cash, Cash Equivalents and Investments
The following table summarizes our cash, cash equivalents and short-term and long-term investments at March 31, 2016, 2015 and 2014, (in thousands, except percentages):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash and cash equivalents
|
|
$
|
88,323
|
|
|
$
|
107,015
|
|
|
$
|
73,589
|
|
Short-term investments
|
|
|
41,474
|
|
|
|
26,109
|
|
|
|
29,102
|
|
Long-term investments
|
|
|
22,458
|
|
|
|
24,181
|
|
|
|
18,491
|
|
Total cash, cash equivalents and investments
|
|
$
|
152,255
|
|
|
$
|
157,305
|
|
|
$
|
121,182
|
|
Percentage of total assets
|
|
|
56
|
%
|
|
|
58
|
%
|
|
|
56
|
%
|
At March 31, 2016, we had net working capital of $183.0 million compared to $168.6 million at March 31, 2015.
Cash Flow Changes
Cash provided by (used in) operating, investing and financing activities during fiscal 2016, 2015 and 2014 were as follows (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net cash provided by operating activities
|
|
$
|
28,056
|
|
|
$
|
36,396
|
|
|
$
|
35,572
|
|
Net cash provided by (used in) investing activities
|
|
|
(20,237
|
)
|
|
|
10,093
|
|
|
|
(13,358
|
)
|
Net cash used in financing activities
|
|
|
(26,627
|
)
|
|
|
(10,962
|
)
|
|
|
(4,045
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
116
|
|
|
|
(2,101
|
)
|
|
|
510
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(18,692
|
)
|
|
$
|
33,426
|
|
|
$
|
18,679
|
|
Cash and cash equivalents at March 31, 2016 were $88.3 million compared to $107.0 million at March 31, 2015. The decrease in cash and cash equivalents during fiscal 2016 was primarily due to purchases of investments of $63.8 million, purchases of property and equipment of $5.2 million, payments made for tax withholdings related to net share settlements of restricted stock units of $5.3 million, repurchases of common stock of $13.0 million and payment of cash dividends totaling $10.0 million. The decrease was partially offset by net cash provided by operating activities of $28.1 million and proceeds from maturities and redemptions of investments of $49.0 million.
Our consolidated statements of cash flows includes the effect of exchange rate changes on cash and cash equivalents and the net gains (losses) arising from transactions denominated in a currency other than the functional currency of a location and the remeasurement of assets and liabilities of our wholly-owned subsidiaries, using the U.S. dollar as the functional currency.
Cash Flows from Operating Activities
During fiscal 2016, we generated $28.1 million in cash from operating activities, compared to $36.4 million in fiscal 2015. The cash provided by operating activities during fiscal 2016 was primarily the result of net income of $31.6 million during fiscal 2016, adjusted for the effects of non-cash adjustments including depreciation and amortization of $6.7 million and share-based compensation expense of $11.1 million, partially offset by a decrease of $1.6 million related to excess tax benefits from share-based awards.
Other changes in operating activities during fiscal 2016 were as follows:
• |
Receivables, net increased by $6.1 million, from $29.0 million at March 31, 2015 to $35.1 million as of March 31, 2016, primarily attributable to higher sales in the last month of the fourth quarter of fiscal 2016. |
• |
Inventories decreased by $1.0 million from $36.2 million at March 31, 2015 to $35.1 million as of March 31, 2016, primarily due to a decrease in the inventory levels of our finished goods as of March 31, 2016. |
• |
Prepaid expenses and other current assets increased by $3.5 million, from $2.9 million at March 31, 2015 to $6.4 million as of March 31, 2016, primarily attributable to the timing of estimated income taxes and the retroactive reinstatement of federal research and development tax credits and federal bonus depreciation. |
• |
Current net deferred tax assets decreased by $1.8 million, from $6.6 million at March 31, 2015 to $4.8 million as of March 31, 2016, primarily as a result of the timing for the deduction of reserves and accruals. |
• |
Non-current net deferred tax assets increased by $0.5 million, from $3.4 million at March 31, 2015 to $3.9 million as of March 31, 2016, primarily as a result of the timing for the deduction of share-based compensation expenses. |
• |
Other assets increased by $1.8 million from $0.1 million as of March 31, 2015 to $2.0 million, as of March 31, 2016, primarily attributable to long-term receivables due to extended payment terms by customers under certain of our sales programs. |
• |
Accrued payroll and related expenses decreased by $2.7 million, from $11.1 million at March 31, 2015 to $8.3 million as of March 31, 2016, primarily attributable to higher accrued bonus at March 31, 2015. |
• |
Accrued taxes decreased by $3.7 million, from $4.8 million at March 31, 2015 to $1.1 million as of March 31, 2016, primarily due to the timing of estimated income tax payments. |
• |
Current liabilities of discontinued operations decreased by $5.4 million from $5.5 million at March 31, 2015 to $0.1 million as of March 31, 2016, primarily due to payments related to our cost obligations for employee-related costs, including severance, contract termination and other associated costs in connection with the sale of our AVRL business in March 2015. |
• |
Other accrued liabilities, current, decreased by $0.4 million, from $9.8 million as of March 31, 2015 to $9.4 million as of March 31, 2016 and other liabilities, non-current, decreased by $0.9 million, from $1.8 million at March 31, 2015 to $0.9 million as of March 31, 2016. The net current and non-current other liabilities decreased primarily attributable to (a) a decrease in liabilities related to lower instrument sales and the types of customer sales incentive programs offered during a promotional period and (b) the timing of our installment payment obligation related to our November 2014 acquisition of QCR and Trio. |
• |
As of March 31, 2016 and 2015, the current portion of deferred revenue was $1.6 million and $1.3 million, respectively, and the non-current portion of deferred revenue was $2.3 million and $3.2 million, respectively. Net current and non-current deferred revenue decreased by $0.7 million from March 31, 2015 to March 31, 2016, primarily attributable to deferred revenue recognized ratably over the life of extended maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments. In October 2013, we prospectively changed the standard warranty obligations on certain instruments sold from three to five years, which resulted in a decrease in maintenance contracts offered to customers in the form of free services in connection with the sale of our instruments. |
• |
As of March 31, 2016 and 2015, the current portion of warranty reserve was $1.3 million and $1.4 million, respectively, and the non-current portion of warranty reserve was $1.9 million and $1.7 million, respectively. Net current and non‑current warranty reserve increased by $0.1 million. The change in current and non-current warranty reserve from March 31, 2015 to March 31, 2016 included an adjustment to pre-existing warranties of $0.2 million based on our historical experience and our projected performance rate of instruments. Warranty reserve is primarily based on (a) the number of instruments in standard warranty, estimated product failure rates and estimated repair costs and (b) an estimate of defective reagent discs and replacement costs of reagent discs. In October 2013, we prospectively changed the standard warranty obligations on certain instruments from three to five years. The increase in the standard warranty obligation did not result in a material impact on our warranty reserves or cost of revenues during the period. Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated. |
We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, timing of product sales, accounts receivable collections performance, inventory and supply chain management, and the timing and amount of payments. Furthermore, we anticipate that we will incur incremental costs to support our future operations, including research and design costs related to the continuing development of our current and future products; clinical trials for our current and future products, and acquisition of capital equipment for our manufacturing facility.
Cash Flows from Investing Activities
Net cash used in investing activities during fiscal 2016 totaled $20.2 million, compared to net cash provided of $10.1 million during fiscal 2015. Cash used in investing activities during fiscal 2016 was primarily due to purchases of investments in certificates of deposit, commercial paper and corporate bonds totaling $63.8 million, capital expenditures of $5.2 million and a $1.1 million cash installment payment obligation related to our November 2014 acquisition of QCR and Trio, partially offset by proceeds from maturities and redemptions of investments in certificates of deposit, commercial paper, corporate bonds and municipal bonds of $49.0 million. The purchases of capital equipment primarily relate to increasing our manufacturing capacity and supporting our growth. We expect to continue to make significant capital expenditures as necessary in the normal course of our business.
Cash Flows from Financing Activities
Net cash used in financing activities during fiscal 2016 totaled $26.6 million, compared to net cash used of $11.0 million during fiscal 2015. Cash used in financing activities during fiscal 2016 was primarily due to payments made for tax withholdings related to net share settlements of restricted stock units of $5.3 million, repurchases of common stock of $13.0 million and cash dividend payments of $10.0 million, offset in part by net cash provided by financing activities from excess tax benefits from share-based awards of $1.6 million.
Dividend Payments
During fiscal 2016 and 2015 our total quarterly dividend payout was $10.0 million and $9.0 million, respectively. During fiscal 2014, we did not pay dividends on our outstanding common stock. The amount of quarterly dividends declared with respect to the Company’s common stock during the past two fiscal years appears in Note 21 to the Consolidated Financial Statements in Part II, Item 8 of this report.
On April 27, 2016, our Board of Directors declared a cash dividend of $0.12 per share on our outstanding common stock to be paid on June 17, 2016 to all shareholders of record as of the close of business on June 3, 2016. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.
Share Repurchase Program
Between August 2011 and January 2012, our Board of Directors authorized the repurchase of up to a total of $55.0 million of our common stock. In July 2013, our Board of Directors approved a $12.3 million increase to our existing share repurchase program to a total of $67.3 million. As of March 31, 2016, $24.0 million of our common stock was available for repurchase under our share repurchase program.
Since the share repurchase program began, through March 31, 2016, we have repurchased 1.6 million shares of our common stock at a total cost of $43.3 million, including commission expense. During fiscal 2016, we repurchased 325,000 shares of our common stock at a total cost of $13.0 million and an average per share cost including commission expense of $40.18. During fiscal 2015, we did not repurchase any shares of our common stock. During fiscal 2014, we repurchased 86,000 shares of our common stock for a total cost of $3.0 million and an average per share cost including commission expense of $34.58. The repurchases are made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. Repurchased shares are retired.
Financial Condition
We believe that our cash and cash equivalents, investments and expected cash flows from operations will be sufficient to fund our operations, capital requirements, share repurchase program and anticipated quarterly dividends for at least the next twelve months. Our future capital requirements will largely depend upon the increased customer demand and market acceptance of our point-of-care blood analyzer products. However, our sales for any future periods are not predictable with a significant degree of certainty. Regardless, we may seek to raise additional funds to pursue strategic opportunities.
Contractual Obligations
As of March 31, 2016, our contractual obligations for succeeding fiscal years are as follows (in thousands):
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2017
|
|
|
|
2018-2019
|
|
|
|
2020-2021
|
|
|
After 2021
|
|
Long-term debt obligations
|
|
$
|
538
|
|
|
$
|
123
|
|
|
$
|
231
|
|
|
$
|
184
|
|
|
$
|
-
|
|
Operating lease obligations
|
|
|
24,600
|
|
|
|
2,386
|
|
|
|
4,576
|
|
|
|
4,668
|
|
|
|
12,970
|
|
Purchase obligations
|
|
|
11,522
|
|
|
|
7,024
|
|
|
|
4,498
|
|
|
|
-
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
1,077
|
|
|
|
1,077
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
37,737
|
|
|
$
|
10,610
|
|
|
$
|
9,305
|
|
|
$
|
4,852
|
|
|
$
|
12,970
|
|
Long-term Debt Obligations. Long-term debt obligations include current and non-current portion of long-term debt and interest payments associated with notes payable to the Community Redevelopment Agency of the City of Union City. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Operating Lease Obligations. Operating lease obligations comprised our principal facility and various leased facilities and equipment under operating lease agreements, which expire on various dates from fiscal 2017 through fiscal 2026. Our principal facilities located in Union City, California are leased under a non-cancelable operating lease agreement, which expires in fiscal 2026. See Note 13 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Purchase Obligations. Our purchase commitments comprise of supply and inventory related agreements. See Note 13 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Other Long-term Liabilities. Other long-term liabilities in the preceding table include the current portion, as recorded on our consolidated balance sheet, of an installment payment obligations payable in fiscal year 2017 in connection with our acquisition of QCR and Trio in November 2014. See Note 2 to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
Contingencies
We are involved from time to time in various litigation matters in the normal course of business. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements
As of March 31, 2016, we did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K promulgated under the Securities Act of 1933. In addition, we identified no variable interests in any variable interest entities.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1, “Description of Business and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
Our financial position is exposed to a variety of risks related to changes in interest rates and foreign currency rates and investment in a privately held company. As a matter of management policy, we do not currently enter into transactions involving derivative financial instruments.
Interest Rate Risk
Our investment objective is to invest excess cash in cash equivalents and in various types of investments to maximize yields without significantly increased risk. At March 31, 2016, our short-term and long-term investments totaled $41.5 million and $22.5 million, respectively, consisting of investments in certificates of deposit, commercial paper and corporate bonds. For our securities classified as available-for-sale, we record these investments at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of accumulated other comprehensive loss, net of any tax effects, in shareholders’ equity. The fair value of our investment portfolio is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ credit worthiness. Changes in market interest rates would not be expected to have a material impact on the fair value of these assets at March 31, 2016, as the assets consisted of highly liquid securities.
We are exposed to the impact of interest rate changes with respect to our short-term and long-term investments. As of March 31, 2016, we had $56.9 million in investments classified as held-to-maturity and carried at amortized cost. We have the ability to hold the investments classified as held-to-maturity in our investment portfolio at March 31, 2016 until maturity and therefore, we believe we have no material exposure to interest rate risk. As of March 31, 2016, our investments classified as available-for-sale totaled $7.0 million, consisting primarily of fixed income securities and thus changes in interest rates would not have a material effect on our business, operating results or financial condition. We have not experienced any significant loss on our investment portfolio during fiscal 2016, 2015 and 2014.
Foreign Currency Rate Fluctuations
We operate primarily in the United States and a majority of our revenues, cost of revenues, operating expenses and capital purchasing activities are transacted in U.S. dollars. However, we are exposed to foreign currency risks that arise from normal business operations. These risks are primarily related to remeasuring local currency balances and results of our foreign subsidiaries, into U.S. dollars and third-party transactions denominated in a currency other than the U.S. dollar. As currency exchange rates change, remeasurement of the accounts of our foreign subsidiaries into U.S. dollars affects year-over-year comparability of operating results.
The functional currency of our wholly-owned subsidiaries is in U.S. dollars. Foreign currency denominated account balances of our subsidiaries are remeasured into U.S. dollars at the end-of-period exchange rates for monetary assets and liabilities, and historical exchange rates for nonmonetary assets. The effects of foreign currency transactions, and of remeasuring the financial condition into the functional currency, resulted in foreign currency gains and losses, which were included in “Interest and other income (expense), net” on our consolidated statements of income. For our sales denominated in foreign currencies, we are exposed to foreign currency exchange rate fluctuations on revenue and collection of receivables.
Our most significant third-party transactions denominated in foreign currency are inventory purchases of hematology products from Diatron MI PLC, which are primarily denominated in Euros. To the extent the U.S. dollar strengthens against the Euro currency, the translation of the foreign currency denominated transactions may result in reduced cost of revenues and operating expenses. Similarly, our cost of revenues and operating expenses will increase if the U.S. dollar weakens against the Euro currency. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 10% for our foreign currency denominated transactions could be experienced in the near term. If the U.S. dollar weakened or strengthened by 10% against the Euro, the impact of changes in the exchange rate would not have had a material effect on our business, operating results or financial condition for the year ended March 31, 2016. To date, we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates.
Investment in a Privately Held Company
In February 2011, we purchased a 15% equity ownership interest in SMB, for $2.8 million in cash. SMB is a privately-held developer and manufacturer of point-of-care diagnostic products for veterinary use. SMB, based in Farum, Denmark, has been the original equipment manufacturer of the Abaxis VetScan VSpro point-of-care specialty analyzer since 2008. The investment is recorded in “Investment in Unconsolidated Affiliate” in our consolidated balance sheets and we use the equity method to account for our investment in this entity because we do not control it, but have the ability to exercise significant influence over it. As of March 31, 2016, the total carrying amount of our investment in SMB was $2.7 million. The investment is inherently risky and we could lose our entire investment in this company. To date, since our investment in SMB, we have not recorded an impairment charge on this investment.
Item 8. |
Financial Statements and Supplementary Data |
ABAXIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm
|
52
|
|
|
Consolidated Balance Sheets at March 31, 2016 and 2015
|
53
|
|
|
Consolidated Statements of Income for the Years Ended March 31, 2016, 2015 and 2014
|
54
|
|
|
Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2016, 2015 and 2014
|
55
|
|
|
Consolidated Statements of Shareholders’ Equity for the Years Ended March 31, 2016, 2015 and 2014
|
55
|
|
|
Consolidated Statements of Cash Flows for the Years Ended March 31, 2016, 2015 and 2014
|
57
|
|
|
Notes to Consolidated Financial Statements
|
58
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Abaxis, Inc.
We have audited the accompanying consolidated balance sheets of Abaxis, Inc. and its subsidiaries (the “Company”) as of March 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(a) 2. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Abaxis, Inc. and its subsidiaries as of March 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Tredway Commission and our report dated May 31, 2016 expressed an unqualified opinion thereon.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
May 31, 2016
ABAXIS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
March 31,
|
|
ASSETS
|
|
2016
|
|
|
2015
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
88,323
|
|
|
$
|
107,015
|
|
Short-term investments
|
|
|
41,474
|
|
|
|
26,109
|
|
Receivables (net of allowances of $479 in 2016 and $247 in 2015)
|
|
|
35,148
|
|
|
|
29,015
|
|
Inventories
|
|
|
35,131
|
|
|
|
36,179
|
|
Prepaid expenses and other current assets
|
|
|
6,351
|
|
|
|
2,893
|
|
Net deferred tax assets, current
|
|
|
4,810
|
|
|
|
6,575
|
|
Current assets of discontinued operations
|
|
|
961
|
|
|
|
2,075
|
|
Total current assets
|
|
|
212,198
|
|
|
|
209,861
|
|
Long-term investments
|
|
|
22,458
|
|
|
|
24,181
|
|
Investment in unconsolidated affiliate
|
|
|
2,705
|
|
|
|
2,683
|
|
Property and equipment, net
|
|
|
26,842
|
|
|
|
27,316
|
|
Intangible assets, net
|
|
|
1,324
|
|
|
|
1,491
|
|
Net deferred tax assets, non-current
|
|
|
3,903
|
|
|
|
3,413
|
|
Non-current assets of discontinued operations
|
|
|
-
|
|
|
|
12
|
|
Other assets
|
|
|
1,950
|
|
|
|
107
|
|
Total assets
|
|
$
|
271,380
|
|
|
$
|
269,064
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,292
|
|
|
$
|
7,277
|
|
Accrued payroll and related expenses
|
|
|
8,349
|
|
|
|
11,094
|
|
Accrued taxes
|
|
|
1,145
|
|
|
|
4,829
|
|
Current liabilities of discontinued operations
|
|
|
112
|
|
|
|
5,536
|
|
Other accrued liabilities
|
|
|
9,393
|
|
|
|
9,804
|
|
Deferred revenue
|
|
|
1,600
|
|
|
|
1,322
|
|
Warranty reserve
|
|
|
1,281
|
|
|
|
1,423
|
|
Total current liabilities
|
|
|
29,172
|
|
|
|
41,285
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
2,274
|
|
|
|
3,219
|
|
Warranty reserve
|
|
|
1,927
|
|
|
|
1,733
|
|
Net deferred tax liabilities
|
|
|
384
|
|
|
|
310
|
|
Notes payable, less current portion
|
|
|
379
|
|
|
|
480
|
|
Other non-current liabilities
|
|
|
932
|
|
|
|
1,843
|
|
Total non-current liabilities
|
|
|
5,896
|
|
|
|
7,585
|
|
Total liabilities
|
|
|
35,068
|
|
|
|
48,870
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value: 5,000,000 shares authorized; no shares issued and outstanding in 2016 and 2015
|
|
|
-
|
|
|
|
-
|
|
Common stock, no par value: 35,000,000 shares authorized; 22,408,000 and 22,539,000 shares issued and outstanding in 2016 and 2015, respectively
|
|
|
127,016
|
|
|
|
132,559
|
|
Retained earnings
|
|
|
109,303
|
|
|
|
87,643
|
|
Accumulated other comprehensive loss
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Total shareholders' equity
|
|
|
236,312
|
|
|
|
220,194
|
|
Total liabilities and shareholders' equity
|
|
$
|
271,380
|
|
|
$
|
269,064
|
|
See accompanying Notes to Consolidated Financial Statements.
ABAXIS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
218,901
|
|
|
$
|
202,593
|
|
|
$
|
162,031
|
|
Cost of revenues
|
|
|
95,649
|
|
|
|
93,623
|
|
|
|
78,081
|
|
Gross profit
|
|
|
123,252
|
|
|
|
108,970
|
|
|
|
83,950
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
18,388
|
|
|
|
16,327
|
|
|
|
13,647
|
|
Sales and marketing
|
|
|
42,526
|
|
|
|
42,147
|
|
|
|
34,742
|
|
General and administrative
|
|
|
15,984
|
|
|
|
16,192
|
|
|
|
11,333
|
|
Total operating expenses
|
|
|
76,898
|
|
|
|
74,666
|
|
|
|
59,722
|
|
Income from operations
|
|
|
46,354
|
|
|
|
34,304
|
|
|
|
24,228
|
|
Interest and other income (expense), net
|
|
|
793
|
|
|
|
(1,262
|
)
|
|
|
994
|
|
Income from continuing operations before income tax provision
|
|
|
47,147
|
|
|
|
33,042
|
|
|
|
25,222
|
|
Income tax provision
|
|
|
16,073
|
|
|
|
12,239
|
|
|
|
8,993
|
|
Income from continuing operations
|
|
|
31,074
|
|
|
|
20,803
|
|
|
|
16,229
|
|
Discontinued operations (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
(3
|
)
|
|
|
(1,154
|
)
|
|
|
(2,044
|
)
|
Gain on sale of discontinued operations, net of tax
|
|
|
559
|
|
|
|
7,682
|
|
|
|
-
|
|
Net income
|
|
$
|
31,630
|
|
|
$
|
27,331
|
|
|
$
|
14,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.37
|
|
|
$
|
0.92
|
|
|
$
|
0.73
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
0.29
|
|
|
|
(0.09
|
)
|
Basic net income per share
|
|
$
|
1.40
|
|
|
$
|
1.21
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.36
|
|
|
$
|
0.91
|
|
|
$
|
0.72
|
|
Discontinued operations
|
|
|
0.02
|
|
|
|
0.29
|
|
|
|
(0.09
|
)
|
Diluted net income per share
|
|
$
|
1.38
|
|
|
$
|
1.20
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
22,661
|
|
|
|
22,497
|
|
|
|
22,270
|
|
Weighted average common shares outstanding - diluted
|
|
|
22,883
|
|
|
|
22,787
|
|
|
|
22,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.44
|
|
|
$
|
0.40
|
|
|
$
|
-
|
|
See accompanying Notes to Consolidated Financial Statements.
ABAXIS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
31,630
|
|
|
$
|
27,331
|
|
|
$
|
14,185
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss) on investments
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
(79
|
)
|
Tax provision (benefit) on other comprehensive income (loss)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(32
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(47
|
)
|
Comprehensive income
|
|
$
|
31,631
|
|
|
$
|
27,328
|
|
|
$
|
14,138
|
|
See accompanying Notes to Consolidated Financial Statements.
ABAXIS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Income
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Equity
|
|
Balances at March 31, 2013
|
|
|
22,120,000
|
|
|
$
|
121,019
|
|
|
$
|
55,133
|
|
|
$
|
42
|
|
|
$
|
176,194
|
|
Common stock issued under stock option exercises
|
|
|
70,000
|
|
|
|
1,455
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,455
|
|
Common stock issued in settlement of restricted stock units, net of shares withheld for employee taxes
|
|
|
204,000
|
|
|
|
(4,683
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,683
|
)
|
Repurchases of common stock, net
|
|
|
(86,000
|
)
|
|
|
(2,981
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,981
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
7,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,629
|
|
Excess tax benefits from share-based awards and other tax adjustments
|
|
|
-
|
|
|
|
2,164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,164
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
14,185
|
|
|
|
-
|
|
|
|
14,185
|
|
Other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
(47
|
)
|
Balances at March 31, 2014
|
|
|
22,308,000
|
|
|
|
124,603
|
|
|
|
69,318
|
|
|
|
(5
|
)
|
|
|
193,916
|
|
Common stock issued under stock option exercises
|
|
|
2,000
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Common stock issued in settlement of restricted stock units, net of shares withheld for employee taxes
|
|
|
203,000
|
|
|
|
(3,026
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,026
|
)
|
Warrant exercises
|
|
|
26,000
|
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
Dividends to shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,006
|
)
|
|
|
-
|
|
|
|
(9,006
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
9,759
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,759
|
|
Compensation expense recognized on accelerated vesting of warrants
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
Excess tax benefits from share-based awards and other tax adjustments
|
|
|
-
|
|
|
|
946
|
|
|
|
-
|
|
|
|
-
|
|
|
|
946
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
27,331
|
|
|
|
-
|
|
|
|
27,331
|
|
Other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Balances at March 31, 2015
|
|
|
22,539,000
|
|
|
|
132,559
|
|
|
|
87,643
|
|
|
|
(8
|
)
|
|
|
220,194
|
|
Common stock issued in settlement of restricted stock units, net of shares withheld for employee taxes
|
|
|
190,000
|
|
|
|
(5,250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,250
|
)
|
Warrant exercises
|
|
|
4,000
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Repurchases of common stock, net
|
|
|
(325,000
|
)
|
|
|
(13,040
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,040
|
)
|
Dividends to shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,970
|
)
|
|
|
-
|
|
|
|
(9,970
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
11,114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,114
|
|
Excess tax benefits from share-based awards and other tax adjustments
|
|
|
-
|
|
|
|
1,621
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,621
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
31,630
|
|
|
|
-
|
|
|
|
31,630
|
|
Other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
Balances at March 31, 2016
|
|
|
22,408,000
|
|
|
$
|
127,016
|
|
|
$
|
109,303
|
|
|
$
|
(7
|
)
|
|
$
|
236,312
|
|
See accompanying Notes to Consolidated Financial Statements.
ABAXIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,630
|
|
|
$
|
27,331
|
|
|
$
|
14,185
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,697
|
|
|
|
8,486
|
|
|
|
7,427
|
|
Investment premium amortization, net
|
|
|
1,180
|
|
|
|
635
|
|
|
|
530
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
(559
|
)
|
|
|
(7,682
|
)
|
|
|
-
|
|
Net loss on disposals of property and equipment
|
|
|
103
|
|
|
|
8
|
|
|
|
20
|
|
Impairment loss of intangible assets
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
Foreign exchange (gain) loss
|
|
|
(149
|
)
|
|
|
1,794
|
|
|
|
(477
|
)
|
Share-based compensation expense
|
|
|
11,100
|
|
|
|
9,787
|
|
|
|
7,643
|
|
Excess tax benefits from share-based awards
|
|
|
(1,621
|
)
|
|
|
(961
|
)
|
|
|
(2,164
|
)
|
Deferred income taxes
|
|
|
1,317
|
|
|
|
(3,954
|
)
|
|
|
(785
|
)
|
Equity in net income of unconsolidated affiliate
|
|
|
(22
|
)
|
|
|
(37
|
)
|
|
|
(33
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(4,914
|
)
|
|
|
(1,306
|
)
|
|
|
11,171
|
|
Inventories
|
|
|
74
|
|
|
|
(10,135
|
)
|
|
|
(2,491
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,912
|
)
|
|
|
787
|
|
|
|
2,962
|
|
Other assets
|
|
|
(1,829
|
)
|
|
|
(55
|
)
|
|
|
21
|
|
Accounts payable
|
|
|
(443
|
)
|
|
|
116
|
|
|
|
(2,018
|
)
|
Accrued payroll and related expenses
|
|
|
(3,081
|
)
|
|
|
6,776
|
|
|
|
(1,626
|
)
|
Accrued taxes
|
|
|
(4,065
|
)
|
|
|
(1,294
|
)
|
|
|
690
|
|
Other liabilities
|
|
|
(4,848
|
)
|
|
|
5,514
|
|
|
|
(98
|
)
|
Deferred revenue
|
|
|
(667
|
)
|
|
|
(702
|
)
|
|
|
131
|
|
Warranty reserve
|
|
|
52
|
|
|
|
1,288
|
|
|
|
484
|
|
Net cash provided by operating activities
|
|
|
28,056
|
|
|
|
36,396
|
|
|
|
35,572
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale investments
|
|
|
(2,731
|
)
|
|
|
-
|
|
|
|
(4,384
|
)
|
Purchases of held-to-maturity investments
|
|
|
(61,049
|
)
|
|
|
(36,804
|
)
|
|
|
(27,798
|
)
|
Proceeds from maturities and redemptions of available-for-sale investments
|
|
|
-
|
|
|
|
6,498
|
|
|
|
1,023
|
|
Proceeds from maturities and redemptions of held-to-maturity investments
|
|
|
48,959
|
|
|
|
26,969
|
|
|
|
23,311
|
|
Purchases of property and equipment
|
|
|
(5,185
|
)
|
|
|
(6,077
|
)
|
|
|
(5,554
|
)
|
Proceeds from disposals of property and equipment
|
|
|
-
|
|
|
|
25
|
|
|
|
44
|
|
Acquisitions, net of cash acquired
|
|
|
(1,131
|
)
|
|
|
(618
|
)
|
|
|
-
|
|
Proceeds from sale of discontinued operations
|
|
|
900
|
|
|
|
20,100
|
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
(20,237
|
)
|
|
|
10,093
|
|
|
|
(13,358
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
-
|
|
|
|
31
|
|
|
|
1,455
|
|
Tax withholdings related to net share settlements of restricted stock units
|
|
|
(5,250
|
)
|
|
|
(3,026
|
)
|
|
|
(4,683
|
)
|
Excess tax benefits from share-based awards
|
|
|
1,621
|
|
|
|
961
|
|
|
|
2,164
|
|
Repurchases of common stock
|
|
|
(13,040
|
)
|
|
|
-
|
|
|
|
(2,981
|
)
|
Proceeds from the exercise of warrants
|
|
|
12
|
|
|
|
78
|
|
|
|
-
|
|
Dividends paid
|
|
|
(9,970
|
)
|
|
|
(9,006
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
(26,627
|
)
|
|
|
(10,962
|
)
|
|
|
(4,045
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
116
|
|
|
|
(2,101
|
)
|
|
|
510
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(18,692
|
)
|
|
|
33,426
|
|
|
|
18,679
|
|
Cash and cash equivalents at beginning of year
|
|
|
107,015
|
|
|
|
73,589
|
|
|
|
54,910
|
|
Cash and cash equivalents at end of year
|
|
$
|
88,323
|
|
|
$
|
107,015
|
|
|
$
|
73,589
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
19,927
|
|
|
$
|
15,888
|
|
|
$
|
4,943
|
|
Supplemental disclosure of non-cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments, net of tax
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
(47
|
)
|
Transfers of equipment between inventory and property and equipment, net
|
|
$
|
987
|
|
|
$
|
2,295
|
|
|
$
|
2,285
|
|
Net change in capitalized share-based compensation
|
|
$
|
14
|
|
|
$
|
(29
|
)
|
|
$
|
(14
|
)
|
Common stock withheld for employee taxes in connection with share-based compensation
|
|
$
|
5,250
|
|
|
$
|
3,026
|
|
|
$
|
4,683
|
|
Repayment of notes payable by credits from municipal agency
|
|
$
|
101
|
|
|
$
|
101
|
|
|
$
|
101
|
|
Settlement of preexisting business relationship in connection with acquisition
|
|
$
|
-
|
|
|
$
|
931
|
|
|
$
|
-
|
|
Installment payment obligation accrued related to acquisition
|
|
$
|
-
|
|
|
$
|
2,336
|
|
|
$
|
-
|
|
See accompanying Notes to Consolidated Financial Statements.
ABAXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2016, 2015 AND 2014
NOTE 1. |
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
Abaxis, Inc. (“Abaxis,” the “Company,” “our,” “us,” or “we”), incorporated in California in 1989, develops, manufactures and markets portable blood analysis systems that are used in a broad range of medical specialties in human or veterinary patient care to provide clinicians with rapid blood constituent measurements. We conduct business worldwide and manage our business on the basis of the following two reportable segments: the medical market and the veterinary market.
Basis of Presentation
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Abaxis and our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Discontinued Operations. On March 18, 2015, we entered into an Asset Purchase Agreement with Antech Diagnostics, Inc. (“Antech”) pursuant to which we sold substantially all of the assets of our Abaxis Veterinary Reference Laboratories (“AVRL”) business. The sale transaction closed on March 31, 2015. The historical operating results of our AVRL business are retrospectively adjusted and presented as discontinued operations in our consolidated balance sheets and consolidated statements of income for all periods presented. See Note 3, “Discontinued Operations” for additional information. Unless noted otherwise, all discussions herein with respect to the Company’s audited consolidated financial statements relate to the Company’s continuing operations.
Reclassifications. Certain reclassifications have been made to prior periods’ financial statements to conform to the current period presentation. These reclassifications did not result in any change in previously reported net income or shareholders’ equity.
Summary of Significant Accounting Policies
Management Estimates. The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures. Significant management estimates made in preparing the consolidated financial statements relate to allowance for doubtful accounts, sales and other allowances, estimated selling price of our products, valuation of inventory, fair value of investments, fair value and useful lives of intangible assets, income taxes, valuation allowance for deferred tax assets, share-based compensation, legal exposures and warranty reserves. Our management bases their estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Our actual results may differ materially from these estimates.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments with original or remaining maturities of three months or less at the time of purchase that are readily convertible into cash. The fair value of these investments was determined by using quoted prices for identical investments in active markets which are measured at Level 1 inputs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” The carrying value of cash equivalents approximates fair value due to their relatively short-term nature.
Investments. We hold both short-term and long-term investments and our portfolio primarily consists of certificates of deposit, commercial paper, corporate bonds and municipal bonds. Short-term investments have maturities of one year or less. All other investments with maturity dates greater than one year are classified as long-term. Our investments are accounted for as either available-for-sale or held-to-maturity. Investments classified as available-for-sale are reported at fair value at the balance sheet date, and temporary differences between cost and fair value are presented as a separate component of accumulated other comprehensive income (loss), net of any related tax effect, in shareholders’ equity. Investments classified as held-to-maturity are based on the Company’s positive intent and ability to hold to maturity and these investments are carried at amortized cost.
Realized gains and losses from investments are included in “Interest and other income (expense), net,” computed using the specific identification cost method. We assess whether an other-than-temporary impairment loss on our investments has occurred due to declines in fair value or other market conditions. Declines in fair value that are determined to be other-than-temporary, if any, are recorded as charges against “Interest and other income (expense), net” in the consolidated statements of income. We did not recognize any impairment loss on investments during fiscal 2016, 2015 or 2014.
Concentration of Credit Risks and Certain Other Risks. Financial instruments that potentially subject us to a concentration of credit risk consist primarily of cash, cash equivalents, investments and receivables. We place our cash, cash equivalents and investments with high credit quality financial institutions that are regularly monitored by management. Deposits held with banks may exceed the amount of the insurance provided by the federal government on such deposits. To date, the Company has not experienced any losses on such deposits. We also have short and long-term investments in certificates of deposit, commercial paper, corporate bonds and municipal bonds, which can be subject to certain credit risk. However, we mitigate the risks by investing in high-grade instruments, limiting our exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers.
We sell our products to distributors and direct customers located primarily in North America, Europe and other countries. Credit is extended to our customers and we generally do not require our customers to provide collateral for purchases on credit. Credit risks are mitigated by our credit evaluation process and monitoring the amounts owed to us, taking appropriate action when necessary. Collection of receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. We maintain an allowance for doubtful accounts, but historically have not experienced any material losses related to an individual customer or group of customers in any particular industry or geographic area. At March 31, 2016, one distributor in the United States accounted for 25% of our total receivables balance. At March 31, 2015, one distributor in the United States accounted for 26% of our total receivables balance.
We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on our future financial position or results of operations: continued Food and Drug Administration compliance or regulatory changes; uncertainty regarding health care reforms; fundamental changes in the technology underlying blood testing; the ability to develop new products and services that are accepted in the marketplace; competition, including, but not limited to, pricing and products or product features and services; the adequate and timely sourcing of inventories; foreign currency fluctuations; litigation, product liability or other claims against Abaxis; the ability to attract and retain key employees; stock price volatility due to general economic conditions or future issuances and sales of our stock; changes in legal and accounting regulations and standards; and changes in tax regulations.
Fair Value Measurements. We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market data and require the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Our financial instruments include cash, cash equivalents, investments, receivables, accounts payable and certain other accrued liabilities. The fair value of cash, cash equivalents, receivables, accounts payable and certain other accrued liabilities are valued at their carrying value, which approximates fair value due to their short maturities. See Note 5, “Fair Value Measurements” for further information on fair value measurement of our financial and nonfinancial assets and liabilities.
Inventories. Inventories include material, labor and manufacturing overhead, and are stated at the lower of standard cost (which approximates actual cost using the first-in, first-out method) or market. Provisions for excess, obsolete and unusable inventories are determined primarily by management’s evaluation of future demand of our products and market conditions. We account for the provisions of excess, obsolete and unusable inventories as a charge to cost of revenues, and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Investment in Unconsolidated Affiliate. In February 2011, we purchased a 15% equity ownership interest in Scandinavian Micro Biodevices APS (“SMB”) for $2.8 million in cash. We use the equity method to account for our investment in this entity because we do not control it, but have the ability to exercise significant influence over it. Equity method investments are recorded at original cost and adjusted periodically to recognize (1) our proportionate share of the investees’ net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value. We eliminate all intercompany transactions in accounting for our equity method investments. During fiscal 2016, 2015 and 2014, we recorded our proportionate share of the investee’s net income or loss in “Interest and other income (expense), net” on the consolidated statements of income.
We assess the potential impairment of our equity method investments when indicators such as a history of operating losses, a negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. We did not recognize any impairment loss on investment in unconsolidated affiliate during fiscal 2016, 2015 or 2014.
Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight-line method using the estimated useful lives of the assets. The table below provides estimated useful lives of property and equipment by asset classification.
Asset Classification
|
Estimated Useful Life
|
Machinery and equipment
|
2-15 years
|
Furniture and fixtures
|
3-8 years
|
Computer equipment
|
2-7 years
|
Building
|
25 years
|
Leasehold improvements
|
Shorter of estimated useful life or remaining lease term
|
Construction in progress primarily consists of purchased material and internal payroll and related costs used in the development of production lines. We did not capitalize interest on constructed assets during fiscal 2016 or 2015 due to immateriality.
Property and equipment includes instruments transferred from inventory and held for loan or evaluation or demonstration purposes to customers. Units held for loan, evaluation or demonstration purposes are carried at cost and depreciated over their estimated useful lives of three to five years. Depreciation expense related to these instruments is recorded in cost of revenues or in the respective operating expense line based on the function and purpose for which it is being used. Proceeds from the sale of evaluation units are recorded as revenue.
Intangible Assets. Intangible assets, consisted of customer relationships, tradename, licenses and other rights acquired from third parties, are presented at cost, net of accumulated amortization. The intangible assets are amortized using the straight-line method over their estimated useful lives of 2-10 years, which approximates the economic benefit. If our underlying assumptions regarding the estimated useful life of an intangible asset change, then the amortization period, amortization expense and the carrying value for such asset would be adjusted accordingly. During fiscal 2016, 2015 and 2014, our changes in estimated useful life of intangible assets were not significant, except as noted below in “Valuation of Long-Lived Assets.”
Valuation of Long-Lived Assets. We evaluate the carrying value of our long-lived assets, such as property and equipment and amortized intangible assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate that the carrying amount of an asset may not be fully recoverable or their useful lives are no longer appropriate. We look to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than the carrying amount. If impairment is determined to exist, any related impairment loss is calculated based on fair value and long-lived assets are written down to their respective fair values. During fiscal 2016, 2015 and 2014, we recognized impairment charges on long-lived assets of $13,000, $1.9 million and $0, respectively. The impairment charges on our long-lived assets in fiscal 2015 were in relation to the property and equipment and intangible assets of the AVRL business, which has been offset against the gain from the sale of AVRL on the consolidated statement of income for fiscal 2015.
Revenue Recognition. Revenues from product sales and services, net of estimated sales allowances, discounts and rebates, are recognized when the following four criteria are met:
• |
Evidence of an arrangement exists: Persuasive evidence of an arrangement with a customer that reflects the terms and conditions to deliver products or render services must exist in order to recognize revenue. |
• |
Upon shipment of the products or rendering of services to the customer: Delivery is considered to occur at the time of shipment of products to a distributor or direct customer, as title and risk of loss have been transferred to the distributor or direct customer on delivery to the common carrier. Rights of return are not provided. For services, delivery was considered to occur as the service was provided. Service revenues were primarily generated from veterinary reference laboratory diagnostic and consulting services for veterinarians. Net service revenues were recognized at the time services were performed. |
• |
Fixed or determinable sales price: When the sales price is fixed or determinable that amount is recognized as revenue. |
• |
Collection is reasonably assured: Collection is deemed probable if a customer is expected to be able to pay amounts under the arrangement as those amounts become due. Revenue is recognized when collectibility of the resulting receivable is reasonably assured. |
Amounts collected in advance of revenue recognition are recorded as a current or non-current deferred revenue liability based on the time from the balance sheet date to the future date of revenue recognition. We recognize revenue associated with extended maintenance agreements ratably over the life of the contract. Until March 2015, we offered discounts on AVRL services for a specified period as incentives. Discounts were reductions to invoiced amounts within a specified period and were recorded at the time services are performed.
Multiple Element Revenue Arrangements. Our sales arrangements may contain multiple element revenue arrangements in which a customer may purchase a combination of instruments, consumables or extended maintenance agreements. Additionally, we provide incentives in the form of free goods or extended maintenance agreements to customers in connection with the sale of our instruments. We participate in selling arrangements in the veterinary market that include multiple deliverables, such as instruments and consumables. Prior to the sale of our AVRL business to Antech in March 2015, our selling arrangements in the veterinary market had also included service agreements associated with our veterinary reference laboratory. Judgments as to the allocation of consideration from an arrangement to the multiple elements of the arrangement, and the appropriate timing of revenue recognition are critical with respect to these arrangements.
A multiple element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. We allocate revenues to each element in a multiple element arrangement based upon the relative selling price of each deliverable. When applying the relative selling price method, we determine the selling price for each deliverable using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our best estimate of selling price for that deliverable. Revenue allocated to each element is then recognized when all revenue recognition criteria are met for each element.
Revenues from our multiple element arrangements are allocated separately to the instruments, consumables, extended maintenance agreements and incentives based on the relative selling price method. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product when it is sold separately. Revenues allocated to each element are then recognized when the basic revenue recognition criteria, as described above, are met for each element. Revenues associated with incentives in the form of free goods are deferred until the goods are shipped to the customer. Revenues associated with incentives in the form of extended maintenance agreements are deferred and recognized ratably over the life of the extended maintenance contract, generally one to three years. Incentives in the form of extended maintenance agreements are our most significant multiple element arrangement.
For our selling arrangements in the veterinary market that include multiple deliverables, such as instruments, consumables or service agreements (prior to the sale of AVRL in March 2015) associated with our veterinary reference laboratory, revenue is recognized upon delivery of the product or performance of the service during the term of the service contract when the basic revenue recognition criteria, as described above, are met for each element. We allocate revenues to each element based on the relative selling price of each deliverable. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately.
Until March 2015, we offered customer incentives consisting of arrangements with customers to include discounts on future sales of services associated with our veterinary reference laboratory. We applied judgment in determining whether future discounts are significant and incremental. When the future discount offered was not considered significant and incremental, we did not account for the discount as an element of the original arrangement. To determine whether a discount was significant and incremental, we looked to the discount provided in comparison to standalone sales of the same product to similar customers, the level of discount provided on other elements in the arrangement, and the significance of the discount to the overall arrangement. If the discount in the multiple element arrangement approximated the discount typically provided in standalone sales, that discount is not considered incremental. During fiscal 2015 and 2014, our customer incentive programs with future discounts were not significant and in fiscal 2016 we did not offer any such incentives.
Starting in fiscal 2016, we entered into sales contracts as the lessor of instruments under sales-type lease agreements with our customers. In the veterinary market, we may offer arrangements to end users for monthly payments of instrument and consumable purchases over a term of six years. The present value of lease receivables, including accrued interest, was $2.1 million and $0, as of March 31, 2016 and 2015, respectively. Our short-term and long-term lease receivables are recorded within “Receivables” and “Other Assets,” respectively, on our consolidated balance sheets. Interest income is recognized monthly over the lease term using the effective-interest method.
Customer Programs. From time to time, we offer customer marketing and incentive programs. Our most significant customer programs are described as follows:
Instrument Trade-In Programs. We periodically offer trade-in programs to customers for trading in an existing instrument to purchase a new instrument and we will either provide incentives in the form of free goods or reduce the sales price of the instrument. These incentives in the form of free goods are recorded based on the relative selling price method according to the policies described above.
Instrument Rental Programs. We periodically offer programs to customers whereby certain instruments are made available to customers for rent or on an evaluation basis. These programs typically require customers to purchase a minimum quantity of consumables during a specified period for which we recognize revenue on the related consumables according to the policies described above. Depending on the program offered, customers may purchase the instrument during the rental or evaluation period. Proceeds from such sale are recorded as revenue according to the policies described above. Rental income, if any, is also recorded as revenue according to the policies described above.
Sales Incentive Programs. We periodically offer customer sales incentive programs and we record reductions to revenue related to these programs. Incentives may be provided in the form of rebates to distributors for volume-based purchases or upon meeting other specified requirements, end-user rebates and discounts. A summary of our revenue reductions is described below. Other rebate programs offered to distributors or customers vary from period to period in the medical and veterinary markets and were not significant.
• |
Volume-based Incentives. Volume-based incentives, in the form of rebates, are offered from time to time to distributors and group purchasing organizations upon meeting the sales volume requirements during a qualifying period and are recorded as a reduction to gross revenues during a qualifying period. The pricing rebate program is primarily offered to distributors and group purchasing organizations in the North America veterinary market, upon meeting the sales volume requirements of veterinary products during the qualifying period. Factors used in the rebate calculations include the identification of products sold subject to a rebate during the qualifying period and which rebate percentage applies. Based on these factors and using historical trends, adjusted for current changes, we estimate the amount of the rebate and record the rebate as a deduction to gross revenues when we record the sale of the product. The rebate is recorded as a reserve to offset accounts receivable as settlements are made through offsets to outstanding customer invoices. Settlement of the rebate accruals from the date of sale ranges from one to nine months after sale. Changes in the rebate accrual at the end of each period are based upon distributors and group purchasing organizations meeting the purchase requirements during the quarter. |
• |
Distributor Rebate Incentives. During fiscal 2016 and 2015, we offered a customer sales incentive program, whereby distributors were offered a rebate upon meeting certain requirements. We recognize the rebate obligation as a reduction of revenue at the later of the date on which we sell the product or the date the program is offered. These customer sales incentive programs require management to estimate the rebate amounts to distributors who will qualify for the incentive during the promotional period. We record the estimated liability in other current accrued liabilities on our consolidated balance sheet. Management’s estimates are based on historical experience and the specific terms and conditions of the incentive programs. |
• |
End-User Rebates and Discounts. From time to time, cash rebates are offered to end-users who purchase certain products or instruments during a promotional period and are recorded as a reduction to gross revenues. Additionally, we periodically offer sales incentives to end-users, in the form of sales discounts, to purchase consumables for a specified promotional period, typically over five years from the sale of our instrument, and we reimburse resellers for the value of the sales discount provided to the end-user. We estimate the amount of the incentive earned by end-users during a quarter and record a liability to the reseller as a reduction to gross revenues. Factors used in the liability calculation of incentives earned by end-users include the identification of qualified end-users under the sales program during the period and using historical trends. Settlement of the liability to the reseller ranges from one to twelve months from the date an end-user earns the incentive. |
Royalty Revenues. Royalties are typically based on licensees’ net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured, such as upon the receipt of a royalty statement from the licensee.
Allowance for Doubtful Accounts. We recognize revenue when collection from the customer is reasonably assured. We maintain an allowance for doubtful accounts based on our assessment of the collectability of the amounts owed to us by our customers. We regularly review the allowance and consider the following factors in determining the level of allowance required: the customer’s payment history, the age of the receivable balance, the credit quality of our customers, the general financial condition of our customer base and other factors that may affect the customers’ ability to pay. An additional allowance is recorded based on certain percentages of our aged receivables, using historical experience to estimate the potential uncollectible. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered.
Shipping and Handling. In a sale transaction we recognize amounts billed to customers for shipping and handling as revenue. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of revenues.
Research and Development Expenses. Research and development expenses, including internally developed software costs, are expensed as incurred and include expenses associated with new product research and regulatory activities. Our products include certain software applications that are resident in the product. The costs to develop such software have not been capitalized as we believe our current software development processes are completed concurrent with the establishment of technological feasibility of the software.
Advertising Expenses. Costs of advertising, which are recognized as sales and marketing expenses, are generally expensed in the period incurred. Advertising expenses were $0.7 million, $0.9 million and $0.8 million for fiscal 2016, 2015 and 2014, respectively.
Income Taxes. We account for income taxes using the liability method under which deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be recovered.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. At March 31, 2016 and 2015, we had no significant uncertain tax positions. Our policy is to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes. For fiscal 2016, 2015 and 2014, we did not recognize any interest or penalties related to uncertain tax positions in the consolidated statements of income, and at March 31, 2016 and 2015, we had no accrued interest or penalties.
Share-Based Compensation Expense. We account for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation.” We recognize share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors. As required by fair value provisions of share-based compensation, employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures. The forfeiture rate is estimated based on historical data of our share-based compensation awards that are granted and cancelled prior to vesting and upon historical experience of employee turnover. For restricted stock units, share-based compensation expense is based on the fair value of our stock at the grant date and recognized net of an estimated forfeiture rate, over the requisite service period of the award.
Net Income Per Share. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding using the treasury stock method. Dilutive potential common shares outstanding include outstanding stock options, restricted stock units and warrants.
Comprehensive Income. Comprehensive income generally represents all changes in shareholders’ equity during a period, resulting from net income and transactions from non-owner sources. Comprehensive income consists of net income and the net-of-tax amounts for unrealized gain (loss) on available-for-sale investments (difference between the cost and fair market value). For the periods presented, the accumulated other comprehensive income (loss) consisted of the unrealized gains or losses on the Company’s available-for-sale investments, net of tax.
Foreign Currency. The U.S. dollar is the functional currency for our international subsidiaries. Foreign currency transactions of our subsidiaries are remeasured into U.S. dollars at the end-of-period exchange rates for monetary assets and liabilities, and historical exchange rates for nonmonetary assets. Accordingly, the effects of foreign currency transactions, and of remeasuring the financial condition into the functional currency resulted in foreign currency gains and (losses), which were included in “Interest and other income (expense), net” on the consolidated statements of income and were $0.1 million, $(1.8) million and $0.5 million for fiscal 2016, 2015 and 2014, respectively.
Recent Accounting Pronouncements
Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the FASB decided to delay the effective date of the new standard by one year. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
Simplifying the Measurement of Inventory: In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330),” (“ASU 2015-11”), which amends the guidelines for the measurement of inventory. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
Balance Sheet Classification of Deferred Taxes: In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes (Topic 740),” (“ASU 2015-17”), which amends the accounting guidance related to balance sheet classification of deferred taxes. The amendment requires that deferred tax assets and liabilities be classified as noncurrent in the statement of financial position, thereby simplifying the current guidance that requires an entity to separate deferred tax assets and liabilities into current and noncurrent amounts. ASU 2015-17 is effective beginning in the first quarter of fiscal year 2018. Early adoption is permitted. The amendment can be adopted either prospectively or retrospectively. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
Recognition and Measurement of Financial Assets and Financial Liabilities: In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10),” (“ASU 2016-01”), which changes accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, it clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective beginning in the first quarter of fiscal year 2019. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
Leases: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which amends a number of aspects of lease accounting, including requiring lessees to recognize almost all leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. ASU 2016-02 is effective for us beginning in the first quarter of fiscal year 2020 and is required to be adopted using a modified retrospective approach. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
Employee Share-Based Payment Accounting: In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718),” (“ASU 2016-09”), which simplifies several aspects of employee share-based payment accounting, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 will become effective for us beginning in the first quarter of fiscal year 2018. Early adoption is permitted. We are evaluating the impact of the adoption of this standard on our consolidated financial statements.
In November 2014, we entered into Share Purchase Agreements, through our wholly-owned subsidiary, pursuant to which, we acquired 100% of the outstanding stock of Quality Clinical Reagents Limited (“QCR”) and Trio Diagnostics (Ireland) Ltd (“Trio”), both based in the United Kingdom. QCR and Trio are distributors of laboratory instrumentation and consumables to the veterinary profession in the United Kingdom. Our primary reason for the acquisitions was to continue servicing and supplying Abaxis veterinary products to our customer base. The acquisition date fair value of the purchase consideration was $6.5 million, which included the following (in thousands):
Cash
|
|
$
|
3,196
|
|
Installment payment obligations (1)
|
|
|
2,336
|
|
Settlement of preexisting business relationship at fair value
|
|
|
931
|
|
Total
|
|
$
|
6,463
|
|
(1) |
The installment payment obligation is denominated in British pounds (“GBP”) and the amount in the table above is based on the GBP to U.S. dollar exchange rate at the acquisition date. |
During the third quarter of fiscal 2016, we paid the first installment obligation of GBP 750,000, or $1.1 million, based on the GBP to U.S. dollar exchange rate on the date of payment. The second installment of GBP 750,000 will be placed in escrow as security for post-closing indemnification obligations of certain of the sellers. Based on the GBP to U.S. dollar exchange rate, as of March 31, 2016, $1.1 million was payable pursuant to these obligations. Any amounts remaining in escrow after three years following the closing date will be released to these sellers in calendar year 2017, net of any outstanding indemnification claims. The Share Purchase Agreements contain certain customary representations and warranties. Additionally, in connection with the acquisition, we recorded a settlement of the preexisting business relationship related to accounts receivable due from QCR and Trio that existed on the acquisition date. The book value of the accounts receivable approximated their fair value due to their short-term nature and no gain or loss was recorded.
The following table summarizes the acquisition date fair value of net tangible assets acquired and liabilities assumed from QCR and Trio (in thousands):
|
|
Fair Value
|
|
Net tangible assets acquired
|
|
$
|
5,248
|
|
Intangible assets
|
|
|
|
|
Customer relationships
|
|
|
1,535
|
|
Tradename
|
|
|
16
|
|
Deferred tax liabilities
|
|
|
(336
|
)
|
Total
|
|
$
|
6,463
|
|
The useful lives for the customer relationships and tradename intangible assets acquired in the acquisition are ten years and two years, respectively, and are amortized on a straight-line basis. See Note 9, “Intangible Assets, Net” for additional information.
We evaluated certain assets and liabilities related to the QCR and Trio acquisition during the measurement period, which terminated 12 months from the acquisition date. Changes to amounts recorded as assets or liabilities and corresponding adjustments to the purchase price allocation were insignificant.
Abaxis UK, our wholly-owned subsidiary in the United Kingdom, was formed by our acquisition of Quality Clinical Reagents Limited and Trio Diagnostics (Ireland) Ltd in November 2014. Our consolidated financial statements include the operating results of our business combination and the consolidation of Abaxis UK from the date of acquisition.
NOTE 3.
|
DISCONTINUED OPERATIONS
|
On March 18, 2015, we entered into an asset purchase agreement (“APA”) with Antech pursuant to which we sold substantially all of the assets of our AVRL business. The sale transaction closed on March 31, 2015. The total purchase price under the APA was $21.0 million in cash. During the fourth quarter of fiscal 2015, we received $20.1 million in cash proceeds and we recorded a gain on sale of discontinued operations, net of tax of $7.7 million. During the fourth quarter of fiscal 2016, we recorded $0.6 million, net of tax, as a gain on sale of discontinued operations, upon meeting certain conditions by the first anniversary of the closing date in March 2016.
In accordance with ASC 205, “Presentation of Financial Statements – Discontinued Operations,” a business is classified as a discontinued operation when: (i) the operations and cash flows of the business can be clearly distinguished and have been or will be eliminated from our ongoing operations; (ii) the business has either been disposed of or is classified as held for sale; and (iii) the Company will not have any significant continuing involvement in the operations of the business after the disposal transactions. In accordance with the accounting guidance, the AVRL business represents a separate asset group and the sale of assets in this business qualifies as a discontinued operation.
In connection with the sale of our AVRL business, we recognized a pre-tax gain of $12.3 million ($7.7 million after-tax) on the sale of discontinued operations during fiscal 2015, and a pre-tax gain of $0.9 million ($0.6 million after-tax) on the sale of discontinued operations during fiscal 2016. The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds received over the costs incurred in connection with the sale of AVRL. During the fourth quarter of fiscal 2015, we recorded costs of $7.8 million related to cash payments for employee-related costs, including severance, contract termination and other associated costs. In connection with the transaction, we recorded disposal of and an impairment charge on long-lived assets of $1.9 million during fiscal 2015. These items partially offset the cash proceeds that we received in accordance with the terms of the APA. The following table summarizes the components of the gain (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash proceeds received or realized
|
|
$
|
900
|
|
|
$
|
20,100
|
|
Less: Book value of net assets sold
|
|
|
-
|
|
|
|
(618
|
)
|
Less: Costs incurred directly attributable to the transaction
|
|
|
-
|
|
|
|
(5,211
|
)
|
Net proceeds from sale of discontinued operations
|
|
|
900
|
|
|
|
14,271
|
|
Less: Disposal and impairment of long-lived assets
|
|
|
-
|
|
|
|
(1,941
|
)
|
Gain on sale of discontinued operations
|
|
|
900
|
|
|
|
12,330
|
|
Income tax expense
|
|
|
341
|
|
|
|
4,648
|
|
Net gain on sale of discontinued operations
|
|
$
|
559
|
|
|
$
|
7,682
|
|
The results from discontinued operations were as follows (in thousands):
|
|
Year Ended March 31,
|
|
Discontinued operations:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
760
|
|
|
$
|
14,202
|
|
|
$
|
9,839
|
|
Cost of revenues
|
|
|
985
|
|
|
|
12,614
|
|
|
|
10,680
|
|
Gross profit (loss)
|
|
|
(225
|
)
|
|
|
1,588
|
|
|
|
(841
|
)
|
Sales and marketing expense
|
|
|
(91
|
)
|
|
|
3,442
|
|
|
|
2,588
|
|
Other income (expense), net
|
|
|
127
|
|
|
|
-
|
|
|
|
150
|
|
Loss before income tax provision
|
|
|
(7
|
)
|
|
|
(1,854
|
)
|
|
|
(3,279
|
)
|
Income tax provision (benefit)
|
|
|
(4
|
)
|
|
|
(700
|
)
|
|
|
(1,235
|
)
|
Net loss of discontinued operations
|
|
$
|
(3
|
)
|
|
$
|
(1,154
|
)
|
|
$
|
(2,044
|
)
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
559
|
|
|
$
|
7,682
|
|
|
$
|
-
|
|
The current and non-current assets and liabilities of discontinued operations were as follows (in thousands):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Receivables, net
|
|
$
|
949
|
|
|
$
|
2,075
|
|
Prepaid expenses and other current assets
|
|
|
12
|
|
|
|
-
|
|
Total current assets of discontinued operations
|
|
$
|
961
|
|
|
$
|
2,075
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$ |
-
|
|
|
$ |
12
|
|
Total non-current assets of discontinued operations
|
|
$
|
-
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
449
|
|
Other current liabilities
|
|
|
112
|
|
|
|
5,087
|
|
Total current liabilities of discontinued operations
|
|
$
|
112
|
|
|
$
|
5,536
|
|
Our investments are classified as either available-for-sale or held-to-maturity. The following table summarizes available-for-sale and held-to-maturity investments as of March 31, 2016 and 2015 (in thousands):
|
|
Available-for-Sale Investments
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
7,037
|
|
|
$
|
-
|
|
|
$
|
(12
|
)
|
|
$
|
7,025
|
|
Total available-for-sale investments
|
|
$
|
7,037
|
|
|
$
|
-
|
|
|
$
|
(12
|
)
|
|
$
|
7,025
|
|
|
|
Held-to-Maturity Investments
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
2,737
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
2,740
|
|
Commercial paper
|
|
|
12,455
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
12,449
|
|
Corporate bonds
|
|
|
41,715
|
|
|
|
-
|
|
|
|
(117
|
)
|
|
|
41,598
|
|
Total held-to-maturity investments
|
|
$
|
56,907
|
|
|
$
|
3
|
|
|
$
|
(123
|
)
|
|
$
|
56,787
|
|
|
|
Available-for-Sale Investments
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
4,346
|
|
|
$
|
-
|
|
|
$
|
(14
|
)
|
|
$
|
4,332
|
|
Total available-for-sale investments
|
|
$
|
4,346
|
|
|
$
|
-
|
|
|
$
|
(14
|
)
|
|
$
|
4,332
|
|
|
Held-to-Maturity Investments
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
6,717
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
|
$
|
6,720
|
|
Commercial paper
|
|
|
13,484
|
|
|
|
1
|
|
|
|
-
|
|
|
|
13,485
|
|
Corporate bonds
|
|
|
22,773
|
|
|
|
21
|
|
|
|
(71
|
)
|
|
|
22,723
|
|
Municipal bonds
|
|
|
2,984
|
|
|
|
21
|
|
|
|
(1
|
)
|
|
|
3,004
|
|
Total held-to-maturity investments
|
|
$
|
45,958
|
|
|
$
|
47
|
|
|
$
|
(73
|
)
|
|
$
|
45,932
|
|
The amortized cost of our held-to-maturity investments approximates their fair value. As of March 31, 2016 and 2015, we did not have other-than-temporary impairment in the fair value of any individual security classified as held-to-maturity or available-for-sale. As of March 31, 2016 and 2015, we had unrealized losses on available-for-sale investments, net of related income taxes of $7,000 and $8,000, respectively. Redemptions of investments in accordance with the callable provisions during fiscal 2016, 2015 and 2014 were $0, $1.3 million and $0.6 million, respectively.
The following table summarizes the amortized cost and fair value of our investments, classified by stated maturity as of March 31, 2016 and 2015 (in thousands):
|
|
March 31, 2016
|
|
|
March 31, 2016
|
|
|
|
Available-for-Sale Investments
|
|
|
Held-to-Maturity Investments
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in less than one year
|
|
$
|
4,314
|
|
|
$
|
4,311
|
|
|
$
|
37,163
|
|
|
$
|
37,128
|
|
Due in 1 to 4 years
|
|
|
2,723
|
|
|
|
2,714
|
|
|
|
19,744
|
|
|
|
19,659
|
|
Total investments
|
|
$
|
7,037
|
|
|
$
|
7,025
|
|
|
$
|
56,907
|
|
|
$
|
56,787
|
|
|
|
March 31, 2015
|
|
|
March 31, 2015
|
|
|
|
Available-for-Sale Investments
|
|
|
Held-to-Maturity Investments
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in less than one year
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,109
|
|
|
$
|
26,151
|
|
Due in 1 to 4 years
|
|
|
4,346
|
|
|
|
4,332
|
|
|
|
19,849
|
|
|
|
19,781
|
|
Total investments
|
|
$
|
4,346
|
|
|
$
|
4,332
|
|
|
$
|
45,958
|
|
|
$
|
45,932
|
|
NOTE 5. |
FAIR VALUE MEASUREMENTS |
The following table summarizes financial assets, measured at fair value on a recurring basis, by level of input within the fair value hierarchy as of March 31, 2016 and 2015 (in thousands):
|
|
As of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
9,834
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,834
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
-
|
|
|
|
7,025
|
|
|
|
-
|
|
|
|
7,025
|
|
Total assets at fair value
|
|
$
|
9,834
|
|
|
$
|
7,025
|
|
|
$
|
-
|
|
|
$
|
16,859
|
|
|
|
As of March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
3,053
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,053
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
-
|
|
|
|
4,332
|
|
|
|
-
|
|
|
|
4,332
|
|
Total assets at fair value
|
|
$
|
3,053
|
|
|
$
|
4,332
|
|
|
$
|
-
|
|
|
$
|
7,385
|
|
As of March 31, 2016 and 2015, our Level 1 financial assets consisted of money market mutual funds. Our cash equivalents are highly liquid instruments with original or remaining maturities of three months or less at the time of purchase that are readily convertible into cash. The fair value of our Level 1 financial assets is based on quoted market prices of the underlying security.
As of March 31, 2016 and 2015, our Level 2 financial assets primarily consisted of corporate bonds. For our Level 2 financial assets, we review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data.
As of March 31, 2016 and 2015, we did not have any Level 1 and Level 2 financial liabilities or Level 3 financial assets or liabilities measured at fair value on a recurring basis. We did not have any transfers between Level 1 and Level 2 or transfers in or out of Level 3 during fiscal 2016, 2015 and 2014.
Components of inventories at March 31, 2016 and 2015 were as follows (in thousands):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
15,737
|
|
|
$
|
16,436
|
|
Work-in-process
|
|
|
6,039
|
|
|
|
3,984
|
|
Finished goods
|
|
|
13,355
|
|
|
|
15,759
|
|
Inventories
|
|
$
|
35,131
|
|
|
$
|
36,179
|
|
NOTE 7. |
INVESTMENT IN UNCONSOLIDATED AFFILIATE |
Our investment in an unconsolidated affiliate consists of an investment in equity securities of Scandinavian Micro Biodevices APS (“SMB”). In February 2011, we purchased a 15% equity ownership interest in SMB, for $2.8 million in cash. SMB is a privately-held developer and manufacturer of point-of-care diagnostic products for veterinary use. SMB, based in Farum, Denmark, has been the original equipment manufacturer of the Abaxis VetScan VSpro point-of-care specialty analyzer since 2008. We accounted for our investment in SMB using the equity method due to our significant influence over SMB’s operations. During fiscal 2016, 2015 and 2014, we recorded our allocated portions of SMB’s net income of $22,000, $37,000 and $33,000, respectively. Our proportionate share of SMB’s net income or loss is recorded in “Interest and other income (expense), net” on the consolidated statements of income.
NOTE 8. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment, net, at March 31, 2016 and 2015 consisted of the following (in thousands):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Property and equipment at cost:
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
37,352
|
|
|
$
|
36,296
|
|
Furniture and fixtures
|
|
|
3,878
|
|
|
|
3,162
|
|
Computer equipment
|
|
|
6,593
|
|
|
|
6,356
|
|
Building and leasehold improvements
|
|
|
11,663
|
|
|
|
11,096
|
|
Construction in progress
|
|
|
6,858
|
|
|
|
4,924
|
|
|
|
|
66,344
|
|
|
|
61,834
|
|
Accumulated depreciation and amortization
|
|
|
(39,502
|
)
|
|
|
(34,518
|
)
|
Property and equipment, net
|
|
$
|
26,842
|
|
|
$
|
27,316
|
|
Depreciation and amortization expense for property and equipment from continuing operations amounted to $6.5 million, $6.3 million and $5.1 million in fiscal 2016, 2015 and 2014, respectively. Depreciation and amortization expense for property and equipment from discontinued operations amounted to $0, $0.9 million and $0.8 million in fiscal 2016, 2015 and 2014, respectively.
In connection with the sale of assets of our AVRL business in March 2015, we recorded an impairment charge of $1.6 million to reduce the carrying value of certain property and equipment to its estimated net realizable value (fair value less costs to sell) during the fourth quarter of fiscal 2015.
NOTE 9. |
INTANGIBLE ASSETS, NET |
Intangible assets, net, at March 31, 2016 and 2015 consisted of the following (in thousands):
|
|
Balance, March 31, 2016
|
|
|
|
Cost
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,535
|
|
|
$
|
211
|
|
|
$
|
1,324
|
|
Total intangible assets
|
|
$
|
1,535
|
|
|
$
|
211
|
|
|
$
|
1,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2015
|
|
|
|
Cost
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,535
|
|
|
$
|
57
|
|
|
$
|
1,478
|
|
Tradename
|
|
|
16
|
|
|
|
3
|
|
|
|
13
|
|
Total intangible assets
|
|
$
|
1,551
|
|
|
$
|
60
|
|
|
$
|
1,491
|
|
In November 2014, in connection with our acquisition of 100% of the outstanding stock of QCR and Trio, both based in the United Kingdom, we acquired intangible assets related to customer relationships and tradename, which are amortized on a straight-line basis over its useful lives of ten years and two years, respectively. During fiscal 2016, we recorded an impairment charge of $13,000 to reduce the carrying value of the intangible assets related to tradename to its estimated net realizable value (fair value less costs to sell).
In January 2009, we entered into a license agreement with Inverness Medical Switzerland GmbH (predecessor to Alere Switzerland GmbH (“Alere”), pursuant to which we licensed co-exclusively certain worldwide patent rights. We paid a $5.0 million up-front license fee to Alere in January 2009, which was recorded as an intangible asset on the consolidated balance sheets. The related intangible asset was fully amortized during the fourth quarter of fiscal 2015. Effective February 2015, we terminated our license agreement with Alere as the licensed patents that we used had expired.
In connection with the sale of the assets of our AVRL business in March 2015, we determined that our other intangible assets were impaired and accordingly, we recorded an impairment charge of $0.4 million during the fourth quarter of fiscal 2015. Our other intangible assets were acquired by issuing warrants to Kansas State University Institute for Commercialization (formerly known as National Institute for Strategic Technology Acquisition and Commercialization) in January 2011 and October 2011.
Amortization expense for intangible assets from continuing operations, included in cost of revenues or in the respective operating expense line based on the function and purpose for which it is being used, amounted to $0.2 million, $1.2 million and $1.4 million in fiscal 2016, 2015 and 2014, respectively. Amortization expense for intangible assets from discontinued operations amounted to $0, $0.1 million and $0.1 million in fiscal 2016, 2015 and 2014, respectively. Based on our intangible assets subject to amortization as of March 31, 2016, the estimated amortization expense for succeeding years is as follows (in thousands):
|
|
Estimated Future Annual Amortization Expense
|
|
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Amortization expense
|
|
$
|
1,324
|
|
|
$
|
154
|
|
|
$
|
154
|
|
|
$
|
154
|
|
|
$
|
154
|
|
|
$
|
154
|
|
|
$
|
554
|
|
NOTE 10. |
WARRANTY RESERVES |
We provide for the estimated future costs to be incurred under our standard warranty obligation on our instruments and reagent discs.
Instruments. Our standard warranty obligation on instruments ranges from one to five years, depending on the specific product. The estimated contractual warranty obligation is recorded when the related revenue is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated. Cost of revenues reflects estimated warranty expense for instruments sold in the current period and any adjustments in estimated warranty expense for the installed base under our standard warranty obligation based on our quarterly evaluation of service experience. The estimated accrual for warranty exposure is based on historical experience as to product failures, estimated product failure rates, estimated repair costs, material usage and freight incurred in repairing the instrument after failure and known design changes under the warranty plan. Management periodically evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. If an unusual performance rate related to warranty claims is noted, an additional warranty accrual may be assessed and recorded when a failure event is probable and the cost can be reasonably estimated. Effective October 2013, we prospectively changed our standard warranty obligations on certain instruments sold from three to five years. The increase in the standard warranty period did not result in a material impact on our cost of revenues or our accrued warranty costs during fiscal 2016, 2015 and 2014. During fiscal 2016, we recorded an adjustment to pre-existing warranties of $0.2 million, which reduced our warranty reserves and our cost of revenues, based on our historical experience and our projected performance rate of instruments.
Reagent Discs. We record a provision for defective reagent discs when the related sale is recognized and any additional amount is recorded when such cost is probable and can be reasonably estimated. The warranty cost includes the replacement costs and freight of a defective reagent disc. For fiscal 2016, 2015 and 2014, the provision for warranty expense related to replacement of defective reagent discs was $0.4 million, $0.2 million and $0.5 million, respectively. The balance of accrued warranty reserve related to replacement of defective reagent discs at March 31, 2016 and 2015 was $0.5 million and $0.5 million, respectively, which was classified as a current liability on the consolidated balance sheets.
We evaluate our estimates for warranty reserves on an ongoing basis and believe we have the ability to reasonably estimate warranty costs. However, unforeseeable changes in factors may impact the estimate for warranty and such changes could cause a material change in our warranty reserve accrual in the period in which the change was identified.
The change in our accrued warranty reserve during fiscal 2016, 2015 and 2014 is summarized as follows (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of period
|
|
$
|
3,156
|
|
|
$
|
1,868
|
|
|
$
|
1,384
|
|
Provision for warranty expense
|
|
|
1,615
|
|
|
|
2,647
|
|
|
|
2,068
|
|
Warranty costs incurred
|
|
|
(1,340
|
)
|
|
|
(1,359
|
)
|
|
|
(1,584
|
)
|
Adjustment to pre-existing warranties
|
|
|
(223
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
|
3,208
|
|
|
|
3,156
|
|
|
|
1,868
|
|
Non-current portion of warranty reserve
|
|
|
1,927
|
|
|
|
1,733
|
|
|
|
821
|
|
Current portion of warranty reserve
|
|
$
|
1,281
|
|
|
$
|
1,423
|
|
|
$
|
1,047
|
|
Notes Payable. We have a ten year loan agreement with the Community Redevelopment Agency of the City of Union City (“the Agency”) whereby the Agency provides us with an unsecured loan of up to $1.0 million, primarily to purchase capital equipment. The loan was effective January 2011, bears interest at 5.0% and is payable quarterly. As of March 31, 2016, our short-term and long-term notes payable balances were $0.1 million and $0.4 million, respectively, and as of March 31, 2015, our short-term and long-term notes payable balances were $0.1 million and $0.5 million, respectively. The short-term balance was recorded in “Other accrued liabilities” on the consolidated balance sheets. The entire outstanding balance of the note is payable in full on the earlier of: (i) December 2020, or (ii) the date Abaxis ceases operations in Union City, California. The Agency also has the right to accelerate the maturity date and declare all balances immediately due and payable upon the event of default as defined in the loan agreement. We evaluate covenants in our loan agreement on a quarterly basis, and we were in compliance with such covenants as of March 31, 2016.
In accordance with the terms of the loan agreement, the Agency will provide Abaxis with an annual credit that can be applied against the accrued interest and outstanding principal balance on a quarterly basis. The Agency determines the annual credit based on certain taxes paid by Abaxis to the City of Union City, California for a specified period, as defined in the loan agreement. We anticipate that our annual credits from the Agency will be used to fully repay our notes payable due to the Agency. We may carry forward unused quarterly credits to apply against our outstanding balance in a future period. Credits applied to repay our notes payable and accrued interest are recorded in “Interest and other income (expense), net” on the consolidated statements of income.
NOTE 12. |
OTHER CURRENT ACCRUED LIABILITIES |
Other current accrued liabilities at March 31, 2016 and 2015 consisted of the following (in thousands):
|
|
|
|
|
|
|
Accrued liabilities for customer sales incentive programs
|
|
$
|
4,973
|
|
|
$
|
5,507
|
|
Installment payment obligation accrued related to acquisition
|
|
|
1,077
|
|
|
|
1,111
|
|
Other current accrued liabilities
|
|
|
3,343
|
|
|
|
3,186
|
|
Total other current accrued liabilities
|
|
$
|
9,393
|
|
|
$
|
9,804
|
|
At March 31, 2016 and 2015, accrued liabilities for customer sales incentive programs consisted primarily of (i) a liability to distributors or end-users for cash rebates upon meeting certain requirements during a qualifying period and (ii) a liability to resellers for incentives that we estimate at the time of initial sale and adjust as earned by end-users during a specified promotional period.
At March 31, 2016 and 2015, we recorded $1.1 million (or GBP 750,000), based on the GBP to U.S. dollar exchange rate on such date, in other current accrued liabilities in the consolidated balance sheets, related to an installment payment obligation to acquire QCR and Trio in November 2014. Since the exchange rate can fluctuate in the future, the installment payment obligation related to acquisition in absolute dollars will change accordingly. See Note 2, “Acquisitions” for additional information on our acquisition of QCR and Trio.
Other current accrued liabilities included notes payable and various expenses that we accrued for transaction taxes, royalties and professional costs.
NOTE 13. |
COMMITMENTS AND CONTINGENCIES |
Leases
As of March 31, 2016, our contractual obligations for our operating lease obligations for succeeding years are as follows (in thousands):
|
|
Payments Due by Period
|
|
|
|
|
|
|
Due in Fiscal
|
|
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Operating lease obligations
|
|
$
|
24,600
|
|
|
$
|
2,386
|
|
|
$
|
2,292
|
|
|
$
|
2,284
|
|
|
$
|
2,304
|
|
|
$
|
2,364
|
|
|
$
|
12,970
|
|
Our operating lease obligations comprised our principal facility and various leased facilities and equipment under operating lease agreements, which expire on various dates from fiscal 2017 through fiscal 2026. Our principal facilities located in Union City, California is under a non-cancelable operating lease agreement, which expires in fiscal 2026. The monthly rental payments on principal facilities lease increase based on a predetermined schedule and accordingly, we recognize rent expense on a straight-line basis over the life of the lease. Rent expense from continuing operations under operating leases was $2.3 million, $2.0 million and $2.0 million for fiscal 2016, 2015 and 2014, respectively. Rent expense from discontinued operations under operating leases was $0, $0.2 million and $0.1 million for fiscal 2016, 2015 and 2014, respectively.
Commitments
We have purchase commitments, consisting of supply and inventory related agreements, totaling approximately $11.5 million as of March 31, 2016. These purchase order commitments primarily include our purchase obligations to purchase from SMB of Denmark through calendar year 2016 and Diatron of Hungary through fiscal 2018.
Patent Licensing Agreement. From January 2009 to February 2015, under our license agreement with Alere, we licensed co-exclusively certain worldwide patent rights related to lateral flow immunoassay technology in the field of animal health diagnostics in the professional marketplace. The license agreement enabled us to develop and market products under rights from Alere in the animal health and laboratory animal research markets. In exchange for the license rights, we (i) paid an up-front license fee of $5.0 million to Alere in January 2009, (ii) agreed to pay royalties during the term of the agreement, based solely on sales of products in a jurisdiction country covered by valid and unexpired claims in that jurisdiction under the licensed Alere patent rights, and (iii) agreed to pay a yearly minimum license fee of between $0.5 million to $1.0 million per year, which fee was creditable against any royalties due during such calendar year. The royalties, if any, were payable through the date of the expiration of the last valid patent licensed under the agreement that includes at least one claim in a jurisdiction covering products we sell in that jurisdiction. The yearly minimum fees were payable for so long as we desire to maintain exclusivity under the agreement. Effective February 2015, we terminated our license agreement with Alere as the licensed patents that we used had expired. In accordance with the terms of the license agreement, we had no outstanding liabilities related to this license agreement at March 31, 2016.
Litigation
We are involved from time to time in various litigation matters in the normal course of business. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.
NOTE 14. |
EMPLOYEE BENEFIT PLAN |
We have established the Abaxis 401(k) Plan (the “401(k) Plan”), a tax deferred savings plan, for the benefit of qualified employees. The 401(k) Plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to have salary reduction contributions made to the plan on a bi-weekly basis. We may make quarterly contributions to the plan at the discretion of our Board of Directors either in cash or in common stock. Our matching contributions, on a consolidated basis, to the tax deferred savings plan totaled $0.7 million, $0.7 million and $0.3 million in fiscal 2016, 2015 and 2014, respectively. In fiscal 2016, 2015 and 2014, our matching contributions were made in cash. We did not have any matching contributions in the form of common stock in fiscal 2016, 2015 and 2014.
NOTE 15. |
EQUITY COMPENSATION PLANS AND SHARE-BASED COMPENSATION |
Equity Compensation Plans
Our share-based compensation plan is described below.
2014 Equity Incentive Plan. Our 2014 Equity Incentive Plan (the “2014 Plan”), which was approved by our shareholders on October 22, 2014, is the successor to and continuation of the 2005 Equity Incentive Plan (the “2005 Plan”). The terms of the 2014 Plan provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards and performance awards that may be settled in cash, stock or other property. At its October 22, 2014 effective date, the total number of shares of the Company’s common stock available for issuance under the 2014 Plan was 1,712,409 shares, which was equal to the sum of (i) the shares remaining available for issuance pursuant to the exercise of options or issuance or settlement of stock awards that had not previously been granted under the 2005 Plan, as of the effective date of the 2014 Plan and (ii) the Returning Shares (as defined below), as of the effective date of the 2014 Plan. The “Returning Shares” are shares subject to outstanding stock awards granted under the 2005 Plan (the “2005 Available Pool”), as of the effective date of the 2014 Plan, (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited, cancelled or otherwise returned to us because of the failure to meet a contingency or condition required for the vesting of such shares, or (iii) are reacquired or withheld (or not issued) by us to satisfy a tax withholding obligation in connection with a stock award or to satisfy the purchase price or exercise price of a stock award.
As of March 31, 2016, the 2014 Plan provided for the issuance of a maximum of 1,712,409 shares, of which 679,000 shares of common stock were then available for future issuance pursuant to stock awards that had not previously been granted. Shares that are canceled or forfeited from an award and shares withheld in satisfaction of tax withholding obligations are again available for issue under the 2014 Plan.
2005 Equity Incentive Plan. Our 2005 Plan was originally approved by our shareholders in October 2005 and restated and amended our 1998 Stock Option Plan. Our 2005 Plan allowed for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance cash awards, performance shares, performance units, deferred compensation awards or other share-based awards to employees, directors and consultants. Our 2005 Plan was succeeded by our 2014 Plan upon adoption of our 2014 Plan on October 22, 2014, and no additional awards may be made under our 2005 Plan. However, as described above, the 2005 Available Pool became available for issuance under the 2014 Plan and Returning Shares may become available under the 2014 Plan from time to time.
We issue new shares of common stock from our authorized shares for share-based awards upon the exercise of stock options or vesting of restricted stock units.
Share-Based Compensation
Share-based compensation expense and related stock option and restricted stock unit award activity is presented on a consolidated basis, unless otherwise presented as continuing or discontinued operations.
The following table summarizes total share-based compensation expense, net of tax, related to restricted stock units for fiscal 2016, 2015 and 2014, which is included in our consolidated statements of income (in thousands, except per share data):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cost of revenues (1)
|
|
$
|
1,261
|
|
|
$
|
1,409
|
|
|
$
|
1,105
|
|
Research and development
|
|
|
2,056
|
|
|
|
1,574
|
|
|
|
1,138
|
|
Sales and marketing (2)
|
|
|
3,189
|
|
|
|
3,156
|
|
|
|
2,146
|
|
General and administrative
|
|
|
4,594
|
|
|
|
3,648
|
|
|
|
3,254
|
|
Share-based compensation expense before income taxes
|
|
|
11,100
|
|
|
|
9,787
|
|
|
|
7,643
|
|
Income tax benefit
|
|
|
(3,903
|
)
|
|
|
(3,293
|
)
|
|
|
(2,605
|
)
|
Total share-based compensation expense after income taxes
|
|
$
|
7,197
|
|
|
$
|
6,494
|
|
|
$
|
5,038
|
|
Net impact of share-based compensation on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.32
|
|
|
$
|
0.29
|
|
|
$
|
0.23
|
|
Diluted net income per share
|
|
$
|
0.31
|
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
(1) |
Cost of revenues reported in the table include share-based compensation expense from continuing and discontinued operations. Share-based compensation expense included in cost of revenues from continuing operations during fiscal 2016, 2015 and 2014, was $1.1 million, $1.1 million and $1.0 million, respectively, and from discontinued operations during fiscal 2016, 2015 and 2014, was $0.1 million, $0.3 million and $0.1 million, respectively. |
(2) |
Sales and marketing expenses reported in the table include share-based compensation expense from continuing and discontinued operations. Share-based compensation expense included in sales and marketing expenses from continuing operations during fiscal 2016, 2015 and 2014 was $3.0 million, $2.4 million and $1.9 million, respectively, and from discontinued operations during fiscal 2016, 2015 and 2014 was $0.2 million, $0.7 million and $0.2 million, respectively. |
Share-based compensation has been classified in the consolidated statements of income or capitalized on the consolidated balance sheets in the same manner as cash compensation paid to employees. Capitalized share-based compensation costs at March 31, 2016, 2015 and 2014 were $0.1 million, $0.1 million and $0.1 million, respectively, which were included in inventories on our consolidated balance sheets.
Cash Flow Impact
Cash flows resulting from excess tax benefits are classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for exercised stock options and vested restricted stock units in excess of the deferred tax asset attributable to share-based compensation expense for such share-based awards. Excess tax benefits are considered realized when the tax deductions reduce taxes that otherwise would be payable. Excess tax benefits classified as a financing cash inflow for fiscal 2016, 2015 and 2014 were $1.6 million, $0.9 million and $2.2 million, respectively.
Stock Options
Prior to fiscal 2007, we granted stock option awards to employees and directors as part of our share-based compensation program. Option awards to consultants were insignificant. Options granted to employees and directors generally expire ten years from the grant date. Options granted to employees generally become exercisable over a period of four years based on cliff-vesting terms and continuous employment. Options granted to non-employee directors generally become exercisable over a period of one year based on monthly vesting terms and continuous service. We have not granted any stock options since the beginning of fiscal 2007. We have recognized compensation expense for stock options granted during the requisite service period of the stock option. As of March 31, 2016 and 2015, we had no unrecognized compensation expense related to stock options granted. As of March 31, 2016, there were no stock options outstanding.
Stock Option Activity
Stock option activity under all stock plans is summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Outstanding at March 31, 2013
|
|
|
|
|
|
|
(72,000 shares exercisable at a weighted average exercise price of $20.50 per share)
|
|
|
72,000
|
|
|
$
|
20.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(70,000
|
)
|
|
|
20.74
|
|
Canceled or forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2014
|
|
|
|
|
|
|
|
|
(2,000 shares exercisable at a weighted average exercise price of $13.24 per share)
|
|
|
2,000
|
|
|
$
|
13.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(2,000
|
)
|
|
|
13.24
|
|
Canceled or forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
During fiscal 2016, there were no stock options granted, exercised, canceled or forfeited. As of March 31, 2016 and 2015, there were no stock options outstanding or exercisable. Total intrinsic value of stock options exercised during fiscal 2016, 2015 and 2014 was $0, $92,000 and $1.2 million, respectively. Cash proceeds from stock options exercised during fiscal 2016, 2015 and 2014 were $0, $31,000 and $1.5 million, respectively.
Restricted Stock Units
Since fiscal 2007, we have granted restricted stock unit awards to employees and directors as part of our share-based compensation program. Restricted stock unit awards to consultants were not significant. Awards of restricted stock units are issued at no cost to the recipient and may have time-based vesting criteria, or a combination of time-based and performance-based vesting criteria, as described below. From time to time, restricted stock unit awards granted to employees may be subject to accelerated vesting upon achieving certain performance-based milestones. Additionally, the Compensation Committee of our Board of Directors (the “Compensation Committee”) in its discretion, may provide in the event of a change in control for the acceleration of vesting and/or settlement of the restricted stock unit held by a participant upon such conditions and to such extent as determined by the Compensation Committee. Our Board of Directors has adopted an executive change in control severance plan, which it may terminate or amend at any time, that provides that awards granted to executive officers will accelerate fully on a change of control. The vesting of non-employee director and officer awards granted under the 2014 Plan automatically will also accelerate in full upon a change in control. Beginning in fiscal 2015, the Compensation Committee discontinued the practice of granting such “single trigger” acceleration of vesting benefits to new executive officers pursuant to which an executive officer’s outstanding stock option(s) and other unvested equity-based instruments would accelerate in full upon the occurrence of a change of control. Starting in fiscal 2015, we grant “double-trigger” acceleration arrangements to new executive officers, which requires both the occurrence of a change of control and the termination by us (or our successor) for any reason other than cause, death or disability within 18 months following such change of control date, with the termination constituting a separation in service and subject to execution of a valid and effective release of claims against us, for the acceleration of vesting of the executive officer’s equity awards in full.
Restricted Stock Unit Awards (Time Vesting)
Restricted stock unit awards with only time-based vesting terms, which we refer to as restricted stock unit awards (time vesting), entitle holders to receive shares of common stock at the end of a specified period of time. For restricted stock unit awards (time vesting), vesting is based on continuous employment or service of the holder. Upon vesting, the equivalent number of common shares are typically issued net of tax withholdings. If the service vesting conditions are not met, unvested restricted stock unit awards (time vesting) will be forfeited. Generally, restricted stock unit awards (time vesting) vest according to one of the following time-based vesting schedules:
• |
Restricted stock unit awards to employees: Four-year time-based vesting as follows: five percent vesting after the first year; additional ten percent after the second year; additional 15 percent after the third year; and the remaining 70 percent after the fourth year of continuous employment with the Company. |
• |
Restricted stock unit awards to non-employee directors: 100 percent vesting after one year of continuous service to the Company. |
The fair value of restricted stock unit awards (time vesting) used in our expense recognition method is measured based on the number of shares granted and the closing market price of our common stock on the date of grant. Such value is recognized as an expense over the corresponding requisite service period. The share-based compensation expense is reduced for an estimate of the restricted stock unit awards that are expected to be forfeited. The forfeiture estimate is based on historical data and other factors, and compensation expense is adjusted for actual results. As of March 31, 2016, the total unrecognized compensation expense related to restricted stock unit awards (time vesting) granted amounted to $16.7 million, which is expected to be recognized over a weighted average service period of 1.9 years.
Restricted Stock Unit Awards (Performance Vesting)
We also began granting restricted stock unit awards subject to performance vesting criteria, which we refer to as restricted stock unit awards (performance vesting), to our executive officers starting in fiscal 2013. Restricted stock unit awards (performance vesting) consist of the right to receive shares of common stock, subject to achievement of time-based criteria and certain corporate performance-related goals over a specified period, as established by the Compensation Committee. For restricted stock units subject to performance vesting, we recognize any related share-based compensation expense ratably over the service period based on the most probable outcome of the performance condition. The fair value of our restricted stock unit awards (performance vesting) used in our expense recognition method is measured based on the number of shares granted, the closing market price of our common stock on the date of grant and an estimate of the probability of the achievement of the performance goals. The amount of share-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
In fiscal 2014, 2015, 2016 and 2017, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) described below. These restricted stock units vest only if both of the following criteria are satisfied: (1) our consolidated income from operations during the fiscal year in which grant occurred, as certified by the Compensation Committee, is in excess of the applicable target amount described below; and (2) the recipient remains in the continuous service of the Company until the applicable vesting date set forth as follows:
• |
25% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; |
• |
25% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant; |
• |
25% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; and |
• |
25% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant. |
In April 2013, in consideration of the grant of restricted stock unit awards (performance vesting) to our executive officers in fiscal 2014, 75% of the remaining restricted stock unit awards (performance vesting) to our executive officers that were granted in fiscal 2013, which consisted of the second, third and fourth tranches, were cancelled. As a result, these restricted stock units are no longer outstanding and were not deemed granted for accounting purposes because each annual performance target was to be set at the start of each respective single-fiscal year performance period in accordance with ASC 718-10-55-95.
Fiscal 2014 Performance RSUs. In April 2013, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 129,000 shares of common stock to our executive officers that contained the foregoing time-based and performance-based vesting terms (the “FY2014 Performance RSUs”). The aggregate estimated grant date fair value of the FY2014 Performance RSUs was $5.5 million based on the closing market price of our common stock on the date of grant.
At March 31, 2014, we reviewed each of the underlying performance targets related to the outstanding FY2014 Performance RSUs and determined that it was not probable that the FY2014 Performance RSUs would vest and as a result did not record share-based compensation related to these awards during fiscal 2014. On April 23, 2014, the Compensation Committee determined that the Company’s consolidated income from operations for fiscal 2014 was below 90% of target and, accordingly, the FY2014 Performance RSUs did not vest and were cancelled.
Fiscal 2015 Performance RSUs. In April 2014, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 172,000 shares of common stock to our executive officers that contained the foregoing time-based and performance-based vesting terms (the “FY2015 Performance RSUs”). The aggregate estimated grant date fair value of the FY2015 Performance RSUs was $7.0 million based on the closing market price of our common stock on the date of grant. During fiscal 2016 and 2015, we recorded share-based compensation expense ratably over the vesting terms of the FY2015 Performance RSUs, as we determined that the performance targets would be met.
Fiscal 2016 Performance RSUs. In April 2015, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 187,000 shares of common stock to our executive officers and to certain of our employees that contained the foregoing time-based and performance-based vesting terms (the “FY2016 Performance RSUs”). The aggregate estimated grant date fair value of the FY2016 Performance RSUs was $10.3 million based on the closing market price of our common stock on the date of grant. During fiscal 2016, we recorded share-based compensation expense ratably over the vesting terms of the FY2016 Performance RSUs, as we determined that the performance targets would be met.
Fiscal 2017 Performance RSUs. In April 2016, the Compensation Committee approved the grant of restricted stock unit awards (performance vesting) for 152,000 shares of common stock to our executive officers and to certain of our employees (the “FY2017 Performance RSUs”) that contained the foregoing time-based and performance-based vesting terms, except that the restricted stock units granted to our CEO, Mr. Clinton Severson, vest as follows:
• |
approximately 18% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; |
• |
approximately 18% of the shares subject to an award vest in full upon achieving 90% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant; |
• |
approximately 32% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the third anniversary of the date of grant; and |
• |
approximately 32% of the shares subject to an award vest in full upon achieving 100% of the consolidated income from operations target described above and continuous service until the fourth anniversary of the date of grant. |
The aggregate estimated grant date fair value of the FY2017 Performance RSUs was $6.8 million based on the closing market price of our common stock on the date of grant.
As of March 31, 2016, the total unrecognized compensation expense related to restricted stock unit awards (performance vesting) granted amounted to $7.4 million, which is expected to be recognized over a weighted average service period of 2.0 years.
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity during fiscal 2016, 2015 and 2014:
|
|
Time-Based
Restricted Stock Units
|
|
|
Performance-Based
Restricted Stock Units
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value(1)
|
|
|
Number of
Shares(2)
|
|
|
Weighted
Average
Grant Date
Fair Value(1)
|
|
Unvested at March 31, 2013
|
|
|
980,000
|
|
|
$
|
26.42
|
|
|
|
21,000
|
|
|
$
|
35.62
|
|
Granted
|
|
|
175,000
|
|
|
|
41.29
|
|
|
|
129,000
|
|
|
|
42.43
|
|
Vested(3)
|
|
|
(295,000
|
)
|
|
|
21.73
|
|
|
|
(21,000
|
)
|
|
|
35.62
|
|
Canceled and forfeited
|
|
|
(86,000
|
)
|
|
|
31.61
|
|
|
|
(16,000
|
)
|
|
|
42.43
|
|
Unvested at March 31, 2014
|
|
|
774,000
|
|
|
$
|
30.98
|
|
|
|
113,000
|
|
|
$
|
42.43
|
|
Granted
|
|
|
189,000
|
|
|
|
43.85
|
|
|
|
172,000
|
|
|
|
40.82
|
|
Vested(3)
|
|
|
(272,000
|
)
|
|
|
27.24
|
|
|
|
-
|
|
|
|
-
|
|
Canceled and forfeited
|
|
|
(12,000
|
)
|
|
|
30.37
|
|
|
|
(137,000
|
)
|
|
|
42.15
|
|
Unvested at March 31, 2015
|
|
|
679,000
|
|
|
$
|
36.08
|
|
|
|
148,000
|
|
|
$
|
40.82
|
|
Granted
|
|
|
188,000
|
|
|
|
52.90
|
|
|
|
187,000
|
|
|
|
55.08
|
|
Vested(3)
|
|
|
(288,000
|
)
|
|
|
30.06
|
|
|
|
-
|
|
|
|
-
|
|
Canceled and forfeited
|
|
|
(55,000
|
)
|
|
|
36.48
|
|
|
|
(24,000
|
)
|
|
|
55.08
|
|
Unvested at March 31, 2016
|
|
|
524,000
|
|
|
$
|
45.37
|
|
|
|
311,000
|
|
|
$
|
48.29
|
|
(1) |
The weighted average grant date fair value of restricted stock units is based on the number of shares and the closing market price of our common stock on the date of grant. |
(2) |
The shares granted during fiscal 2013 and unvested at March 31, 2013 related to restricted stock unit awards (performance vesting) do not include the awards approved by the Compensation Committee during the fiscal year 2013 that were deemed not to have been granted in accordance with ASC 718-10-55-95. |
(3) |
The number of restricted stock units vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements. |
Total intrinsic value of restricted stock units vested during fiscal 2016, 2015 and 2014 was $15.3 million, $11.7 million and $13.2 million, respectively. The total grant date fair value of restricted stock units vested during fiscal 2016, 2015 and 2014 was $8.6 million, $7.4 million, and $7.2 million, respectively.
NOTE 16.
|
SHAREHOLDERS’ EQUITY
|
Share Repurchase Program
Between August 2011 and January 2012, our Board of Directors authorized the repurchase of up to a total of $55.0 million of our common stock. In July 2013, our Board of Directors approved a $12.3 million increase to our existing share repurchase program to a total of $67.3 million. As of March 31, 2016, $24.0 million of our common stock was available for repurchase under our share repurchase program.
Since the share repurchase program began, through March 31, 2016, we have repurchased 1.6 million shares of our common stock at a total cost of $43.3 million, including commission expense. During fiscal 2016, we repurchased 325,000 shares of our common stock at a total cost of $13.0 million and an average per share cost including commission expense of $40.18. During fiscal 2015, we did not repurchase any shares of our common stock. During fiscal 2014, we repurchased 86,000 shares at a total cost of $3.0 million and an average per share cost including commission expense of $34.58. The repurchases are made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. Repurchased shares are retired.
Dividend Payments
During fiscal 2016 and 2015 our total quarterly dividend payout was $10.0 million and $9.0 million, respectively, and were made from retained earnings. During fiscal 2014, we did not pay dividends on our outstanding common stock. See Note 21, “Summary of Quarterly Data (Unaudited)” for further information on quarterly dividends declared on our common stock during the past two fiscal years.
Common Stock Warrants
As of March 31, 2016, there were no warrants outstanding. During fiscal 2016, we issued 4,000 shares of common stock upon the exercise of vested warrants at an exercise price of $3.00 per share.
At March 31, 2015, there were warrants to purchase 4,000 shares of common stock outstanding at a weighted average exercise price of $3.00 per share, expiring in fiscal years 2016 through 2017. In March 2015, the terms of our agreement with Kansas State University Institute for Commercialization were amended and accordingly, the vesting of these outstanding warrants was accelerated. During the fourth quarter of fiscal 2015, we recorded expense of $0.2 million related to the vesting acceleration using the Black-Scholes option-pricing model.
At March 31, 2014, there were warrants to purchase 30,000 shares of common stock outstanding, of which 20,000 shares were vested, at a weighted average exercise price of $3.00 per share. At March 31, 2013, there were 30,000 warrants outstanding, of which 14,000 shares were vested, to purchase common stock at a weighted average exercise price of $3.00 per share, expiring in fiscal years 2016 through 2017. The fair value of the warrants issued were determined using the Black-Scholes option-pricing model and were amortized over their estimated useful life, of approximately ten years, as an intangible asset. The warrants vested at a rate of 20% annually from their issuance dates and had a term of five years.
NOTE 17.
|
NET INCOME PER SHARE
|
The computations for basic and diluted net income from continuing and discontinued operations per share are as follows (in thousands, except share and per share data):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income from continuing operations
|
|
$
|
31,074
|
|
|
$
|
20,803
|
|
|
$
|
16,229
|
|
Loss from discontinued operations, net of tax
|
|
|
(3
|
)
|
|
|
(1,154
|
)
|
|
|
(2,044
|
)
|
Gain on sale of discontinued operations, net of tax
|
|
|
559
|
|
|
|
7,682
|
|
|
|
-
|
|
Net income
|
|
$
|
31,630
|
|
|
$
|
27,331
|
|
|
$
|
14,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,661,000
|
|
|
|
22,497,000
|
|
|
|
22,270,000
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
1,000
|
|
|
|
20,000
|
|
Restricted stock units
|
|
|
221,000
|
|
|
|
276,000
|
|
|
|
257,000
|
|
Warrants
|
|
|
1,000
|
|
|
|
13,000
|
|
|
|
28,000
|
|
Diluted
|
|
|
22,883,000
|
|
|
|
22,787,000
|
|
|
|
22,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.37
|
|
|
$
|
0.92
|
|
|
$
|
0.73
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
0.29
|
|
|
|
(0.09
|
)
|
Basic net income per share
|
|
$
|
1.40
|
|
|
$
|
1.21
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.36
|
|
|
$
|
0.91
|
|
|
$
|
0.72
|
|
Discontinued operations
|
|
|
0.02
|
|
|
|
0.29
|
|
|
|
(0.09
|
)
|
Diluted net income per share
|
|
$
|
1.38
|
|
|
$
|
1.20
|
|
|
$
|
0.63
|
|
Stock options and warrants are excluded from the computation of diluted weighted average shares outstanding if the exercise price of the stock options and warrants is greater than the average market price of our common stock during the period because the inclusion of these stock options and warrants would be antidilutive to net income per share. There were no stock options and warrants excluded from the computation of diluted weighted average shares outstanding during fiscal 2016, 2015 and 2014.
We excluded the following restricted stock units from the computation of diluted weighted average shares outstanding because the inclusion of these awards would be antidilutive to net income per share:
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average number of shares underlying antidilutive restricted stock units
|
|
|
92,000
|
|
|
|
-
|
|
|
|
5,000
|
|
For our restricted stock unit awards (performance vesting), if the performance criteria are achieved during the period, these awards will be considered outstanding for the purpose of computing diluted net income per share if the effect is dilutive. The performance criteria for our restricted stock unit awards (performance vesting) related to FY2016 Performance RSUs and FY2015 Performance RSUs were achieved during the applicable performance period, fiscal 2016 and fiscal 2015, respectively, and accordingly, the dilutive effect of the shares were included in the computation of diluted weighted average shares outstanding. Because the performance criteria for restricted stock unit awards (performance vesting) related to FY2014 Performance RSUs were not achieved during fiscal 2014, these awards were not included in the diluted net income per share calculation.
Income Tax Provision
The components of our income tax provision are summarized as follows (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,204
|
|
|
$
|
12,065
|
|
|
$
|
7,947
|
|
State
|
|
|
1,562
|
|
|
|
1,657
|
|
|
|
939
|
|
Foreign
|
|
|
1,290
|
|
|
|
64
|
|
|
|
892
|
|
Total current income tax provision
|
|
|
16,056
|
|
|
|
13,786
|
|
|
|
9,778
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
178
|
|
|
|
(1,363
|
)
|
|
|
(631
|
)
|
State
|
|
|
(128
|
)
|
|
|
(158
|
)
|
|
|
(154
|
)
|
Foreign
|
|
|
(33
|
)
|
|
|
(26
|
)
|
|
|
-
|
|
Total deferred income tax provision (benefit)
|
|
|
17
|
|
|
|
(1,547
|
)
|
|
|
(785
|
)
|
Total income tax provision - continuing operations
|
|
$
|
16,073
|
|
|
$
|
12,239
|
|
|
$
|
8,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations and gain on sale of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(835
|
)
|
|
$
|
5,923
|
|
|
$
|
(1,147
|
)
|
State
|
|
|
(69
|
)
|
|
|
458
|
|
|
|
(88
|
)
|
Total current income tax provision (benefit)
|
|
|
(904
|
)
|
|
|
6,381
|
|
|
|
(1,235
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,146
|
|
|
|
(2,258
|
)
|
|
|
-
|
|
State
|
|
|
95
|
|
|
|
(175
|
)
|
|
|
-
|
|
Total deferred income tax (benefit)
|
|
|
1,241
|
|
|
|
(2,433
|
)
|
|
|
-
|
|
Total income tax provision (benefit) - discontinued operations and gain on sale of discontinued operations
|
|
$
|
337
|
|
|
$
|
3,948
|
|
|
$
|
(1,235
|
)
|
The components of our income before income tax provision are summarized as follows (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
43,885
|
|
|
$
|
33,489
|
|
|
$
|
22,598
|
|
Foreign
|
|
|
3,262
|
|
|
|
(447
|
)
|
|
|
2,624
|
|
Total - continuing operations
|
|
$
|
47,147
|
|
|
$
|
33,042
|
|
|
$
|
25,222
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
893
|
|
|
$
|
10,475
|
|
|
$
|
(3,279
|
)
|
The income tax provision from continuing operations differs from the amount computed by applying the federal statutory income tax rate (35 percent) to income from continuing operations before income tax provision as follows (in thousands):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Income taxes at federal income tax rate
|
|
$
|
16,502
|
|
|
$
|
11,565
|
|
|
$
|
8,828
|
|
State income taxes, net of federal benefits
|
|
|
917
|
|
|
|
787
|
|
|
|
475
|
|
Non-deductible compensation
|
|
|
543
|
|
|
|
880
|
|
|
|
260
|
|
Research and development tax credits
|
|
|
(607
|
)
|
|
|
(383
|
)
|
|
|
(210
|
)
|
Tax-exempt interest income
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(20
|
)
|
Qualified production activities income benefit
|
|
|
(761
|
)
|
|
|
(866
|
)
|
|
|
(490
|
)
|
Other
|
|
|
(519
|
)
|
|
|
262
|
|
|
|
150
|
|
Total income tax provision from continuing operations
|
|
$
|
16,073
|
|
|
$
|
12,239
|
|
|
$
|
8,993
|
|
During fiscal 2016, 2015 and 2014, we recognized $1.6 million, $0.9 million and $2.2 million, respectively, of tax deductions related to share-based compensation, on a consolidated basis, in excess of recognized share-based compensation expense (“excess benefits”) that was recorded to shareholders’ equity. We record excess benefits to shareholders’ equity when the benefits result in a reduction in cash paid for income taxes.
Our policy is to reinvest earnings of our foreign subsidiaries unless such earnings are subject to U.S. taxation. As of March 31, 2016, the cumulative earnings upon which U.S. income taxes has not been provided is approximately $0.1 million. The U.S. tax liability if the earnings were repatriated is approximately $50,000.
Unrecognized Tax Benefits
During fiscal 2016, we did not recognize any interest and penalties related to unrecognized tax benefits. We file income tax returns in the U.S. federal jurisdiction, Germany, United Kingdom and various state jurisdictions. The statute of limitations is three years for federal and four years for California. Our federal income tax returns are subject to examination for fiscal years 2013 through 2016. Our California income tax returns are subject to examination for fiscal years 2012 through 2016, with the exception of California tax credit carryovers. To the extent there is a research and development tax credit available for carryover to future years, the statute of limitations with respect to the tax credit begins in the year utilized. As a result of the timing for the utilization of California tax credit carryovers, our California research and development tax credits are subject to examination for fiscal years 2010 through 2016. We are subject to examination in Germany for fiscal years 2013 through 2016 and in the United Kingdom for fiscal years 2012 through 2016.
Deferred Tax Assets and Liabilities
The following table presents the breakdown between current and non-current net deferred tax assets (liabilities) (in thousands):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets, current
|
|
$
|
4,810
|
|
|
$
|
6,575
|
|
Deferred tax assets, non-current
|
|
|
3,903
|
|
|
|
3,413
|
|
Deferred tax liabilities, non-current
|
|
|
(384
|
)
|
|
|
(310
|
)
|
Total net deferred tax assets
|
|
$
|
8,329
|
|
|
$
|
9,678
|
|
Significant components of our deferred tax assets (liabilities) are as follows (in thousands):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Research and development tax credit carryforwards
|
|
$
|
830
|
|
|
$
|
717
|
|
Capitalized research and development
|
|
|
76
|
|
|
|
106
|
|
Inventory reserves
|
|
|
623
|
|
|
|
724
|
|
Deferred revenue from extended maintenance agreements
|
|
|
1,446
|
|
|
|
1,687
|
|
Warranty reserves
|
|
|
1,217
|
|
|
|
1,190
|
|
Accrued payroll and other accrued expenses
|
|
|
1,553
|
|
|
|
2,904
|
|
Share-based compensation
|
|
|
3,822
|
|
|
|
2,932
|
|
Alternative minimum tax credits
|
|
|
24
|
|
|
|
24
|
|
Tax on deferred intercompany profit
|
|
|
601
|
|
|
|
1,161
|
|
Other
|
|
|
665
|
|
|
|
494
|
|
Total deferred tax assets
|
|
|
10,857
|
|
|
|
11,939
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(2,135
|
)
|
|
|
(1,850
|
)
|
Other
|
|
|
(393
|
)
|
|
|
(411
|
)
|
Total deferred tax liabilities
|
|
|
(2,528
|
)
|
|
|
(2,261
|
)
|
Net deferred tax assets
|
|
$
|
8,329
|
|
|
$
|
9,678
|
|
A valuation allowance against deferred tax assets is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. As of March 31, 2016, 2015 and 2014, we did not have a valuation allowance.
As of March 31, 2016, we had no federal or California net operating loss carryforwards. As of March 31, 2016, our California research and development tax credit carryforwards were $1.3 million. The California research and development tax credit will carryforward indefinitely.
NOTE 19.
|
SEGMENT REPORTING INFORMATION
|
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
Abaxis develops, manufactures and markets portable blood analysis systems for use in human or veterinary patient care setting to provide clinicians with rapid blood constituent measurements. We identify our reportable segments as those customer groups that represent more than 10% of our combined revenue or gross profit or loss of all reported operating segments. We manage our business on the basis of the following two reportable segments: (i) the medical market and (ii) the veterinary market, which are based on the products sold by market and customer group. For the products that we manufacture and sell, each reportable segment has similar manufacturing processes, technology and shared infrastructures. The accounting policies for segment reporting are the same as for the Company as a whole. We do not segregate assets by segments since our chief operating decision maker, or decision making group, does not use assets as a basis to evaluate a segment’s performance.
Medical Market
In the medical market reportable segment, we serve a worldwide customer group consisting of physicians’ office practices across multiple specialties, urgent care, outpatient and walk-in clinics (free-standing or hospital-connected), health screening operations, home care providers (national, regional or local), nursing homes, ambulance companies, oncology treatment clinics, dialysis centers, pharmacies, hospital laboratories, military installations (ships, field hospitals and mobile care units), pharmaceutical clinical trials and cruise ship lines. The products manufactured and sold in this segment primarily consist of Piccolo chemistry analyzers and medical reagent discs.
Veterinary Market
In the veterinary market reportable segment, we serve a worldwide customer group consisting of companion animal hospitals, animal clinics with mixed practices of small animals, birds and reptiles, equine and bovine practitioners, veterinary emergency clinics, veterinary referral hospitals, universities, government, pharmaceutical companies, biotechnology companies and private research laboratories. Our veterinary market product offerings include VetScan chemistry analyzers and veterinary reagent discs, VetScan hematology instruments and related reagent kits, VetScan VSpro specialty analyzers and related consumables, VetScan i-STAT analyzers and related consumables and VetScan rapid tests.
In March 2015, we entered into an asset purchase agreement with Antech pursuant to which we sold substantially all of the assets of our AVRL business to Antech, see Note 3. We have reclassified the assets, liabilities, results of operations and the gain on sale of AVRL in our consolidated balance sheets and statements of income for all periods presented to reflect them as discontinued operations. Previously reported financial information have been revised to reflect the reclassification of AVRL within our veterinary market segment as a discontinued operation.
Total Revenues, Cost of Revenues and Gross Profit by Segment
The table below summarizes revenues, cost of revenues and gross profit from our two operating segments and from certain unallocated items and represents our results from continuing operations for fiscal 2016, 2015 and 2014 (in thousands).
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
$
|
37,845
|
|
|
$
|
35,364
|
|
|
$
|
28,134
|
|
Veterinary Market
|
|
|
177,667
|
|
|
|
164,018
|
|
|
|
130,859
|
|
Other(1)
|
|
|
3,389
|
|
|
|
3,211
|
|
|
|
3,038
|
|
Total revenues
|
|
|
218,901
|
|
|
|
202,593
|
|
|
|
162,031
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
19,832
|
|
|
|
18,730
|
|
|
|
15,623
|
|
Veterinary Market
|
|
|
75,688
|
|
|
|
74,752
|
|
|
|
62,350
|
|
Other(1)
|
|
|
129
|
|
|
|
141
|
|
|
|
108
|
|
Total cost of revenues
|
|
|
95,649
|
|
|
|
93,623
|
|
|
|
78,081
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Market
|
|
|
18,013
|
|
|
|
16,634
|
|
|
|
12,511
|
|
Veterinary Market
|
|
|
101,979
|
|
|
|
89,266
|
|
|
|
68,509
|
|
Other(1)
|
|
|
3,260
|
|
|
|
3,070
|
|
|
|
2,930
|
|
Gross profit
|
|
$
|
123,252
|
|
|
$
|
108,970
|
|
|
$
|
83,950
|
|
(1) |
Represents unallocated items, not specifically identified to any particular business segment. |
NOTE 20.
|
REVENUES BY PRODUCT CATEGORY AND GEOGRAPHIC REGION AND SIGNIFICANT CONCENTRATIONS
|
Revenue Information
The following is a summary of our revenues by product category and represents our results from continuing operations (in thousands):
|
|
Year Ended March 31,
|
|
Revenues by Product Category
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Instruments(1)
|
|
$
|
43,042
|
|
|
$
|
48,649
|
|
|
$
|
37,539
|
|
Consumables(2)
|
|
|
165,025
|
|
|
|
144,446
|
|
|
|
117,533
|
|
Other products(3)
|
|
|
10,760
|
|
|
|
9,348
|
|
|
|
6,809
|
|
Product sales, net
|
|
|
218,827
|
|
|
|
202,443
|
|
|
|
161,881
|
|
Development and licensing revenue
|
|
|
74
|
|
|
|
150
|
|
|
|
150
|
|
Total revenues
|
|
$
|
218,901
|
|
|
$
|
202,593
|
|
|
$
|
162,031
|
|
(1) |
Instruments include chemistry analyzers, hematology instruments, VSpro specialty analyzers and i‑STAT analyzers. |
(2) |
Consumables include reagent discs, hematology reagent kits, VSpro specialty cartridges, i‑STAT cartridges and rapid tests. |
(3) |
Other products include products using the Orbos process and extended maintenance agreements. |
The following is a summary of our revenues by geographic region based on customer location and represents our results from continuing operations (in thousands):
|
|
Year Ended March 31,
|
|
Revenues by Geographic Region
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
North America
|
|
$
|
175,019
|
|
|
$
|
163,308
|
|
|
$
|
126,768
|
|
Europe
|
|
|
31,262
|
|
|
|
30,422
|
|
|
|
27,161
|
|
Asia Pacific and rest of the world
|
|
|
12,620
|
|
|
|
8,863
|
|
|
|
8,102
|
|
Total revenues
|
|
$
|
218,901
|
|
|
$
|
202,593
|
|
|
$
|
162,031
|
|
Significant Concentrations
During fiscal 2016, three distributors in the United States, MWI Veterinary Supply, Inc., Patterson Companies, Inc. and Abbott Point of Care, Inc, accounted for 20%, 11% and 10%, respectively, and one distributor in both the United States and Europe, Henry Schein, Inc., accounted for 13% of our total worldwide revenues. During fiscal 2015, two distributors in the United States, MWI Veterinary Supply, Inc., and Abbott Point of Care, Inc. accounted for 19% and 11%, respectively, of our total worldwide revenues. During fiscal 2014, two distributors in the United States, MWI Veterinary Supply, Inc., and Abbott Point of Care, Inc. accounted for 19% and 10%, respectively, of our total worldwide revenues. Starting in the second quarter of fiscal 2016, our revenues from Patterson Companies, Inc. include both Patterson’s veterinary business and Animal Health International, Inc., as a result of Patterson’s acquisition of Animal Health International, Inc. Starting in fiscal 2016, our revenues from Henry Schein, Inc., include both Henry Schein, Inc. and scil animal care company GmbH, as a result of Henry Schein Inc.’s acquisition of scil animal care company GmbH in Europe.
Substantially all of our long-lived assets are located in the United States.
NOTE 21.
|
SUMMARY OF QUARTERLY DATA (UNAUDITED)
|
The following table is a summary of unaudited quarterly data for fiscal 2016 and 2015 (in thousands, except per share data). Previously reported quarterly amounts have been revised to reflect the reclassification of the AVRL business within our veterinary market segment as discontinued operations. See Note 3, “Discontinued Operations” for additional information.
|
|
Quarter Ended
|
|
Fiscal Year Ended March 31, 2016:
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
Revenues
|
|
$
|
53,090
|
|
|
$
|
55,975
|
|
|
$
|
52,876
|
|
|
$
|
56,960
|
|
Gross profit
|
|
|
29,392
|
|
|
|
31,962
|
|
|
|
29,602
|
|
|
|
32,296
|
|
Income from continuing operations, net of tax
|
|
|
6,995
|
|
|
|
7,823
|
|
|
|
7,954
|
|
|
|
8,302
|
|
Gain (loss) from discontinued operations, net of tax
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
-
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
559
|
|
Net income
|
|
$
|
6,995
|
|
|
$
|
7,816
|
|
|
$
|
7,958
|
|
|
$
|
8,861
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.31
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
|
$
|
0.37
|
|
Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.02
|
|
Basic net income per share
|
|
$
|
0.31
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
|
$
|
0.39
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.31
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.03
|
|
Diluted net income per share
|
|
$
|
0.31
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
|
$
|
0.39
|
|
Cash dividends declared per share
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
|
Quarter Ended
|
|
Fiscal Year Ended March 31, 2015:
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
Revenues
|
|
$
|
44,054
|
|
|
$
|
50,471
|
|
|
$
|
56,051
|
|
|
$
|
52,017
|
|
Gross profit
|
|
|
23,703
|
|
|
|
28,076
|
|
|
|
28,783
|
|
|
|
28,408
|
|
Income from continuing operations, net of tax
|
|
|
5,074
|
|
|
|
5,712
|
|
|
|
6,215
|
|
|
|
3,802
|
|
Loss from discontinued operations, net of tax
|
|
|
(359
|
)
|
|
|
(312
|
)
|
|
|
(330
|
)
|
|
|
(153
|
)
|
Gain on sale of discontinued operations, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,682
|
|
Net income
|
|
$
|
4,715
|
|
|
$
|
5,400
|
|
|
$
|
5,885
|
|
|
$
|
11,331
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.23
|
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
|
$
|
0.17
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
0.33
|
|
Basic net income per share
|
|
$
|
0.21
|
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
$
|
0.50
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.23
|
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
|
$
|
0.17
|
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
0.33
|
|
Diluted net income per share
|
|
$
|
0.21
|
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
$
|
0.50
|
|
Cash dividends declared per share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
NOTE 22.
|
SUBSEQUENT EVENTS
|
On April 27, 2016, our Board of Directors declared a cash dividend of $0.12 per share on our outstanding common stock to be paid on June 17, 2016 to all shareholders of record as of the close of business on June 3, 2016.
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Not applicable.
Item 9A.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated that the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer, have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Tredway Commission (COSO). Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of March 31, 2016.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control will provide only reasonable assurance that the objectives of the internal control system are met.
Attestation Report of the Independent Registered Public Accounting Firm
Burr Pilger Mayer, Inc., our independent registered public accounting firm, has issued an audit report on the effectiveness of our internal control over financial reporting as of March 31, 2016, which report is included elsewhere herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders
of Abaxis, Inc.
We have audited the internal control over financial reporting of Abaxis, Inc. and its subsidiaries (the“Company”) as of March 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Tredway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Abaxis, Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Controls Integrated Framework (2013 Framework) by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Abaxis, Inc. and its subsidiaries as of March 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2016 and the related financial statement schedule and our report dated May 31, 2016 expressed an unqualified opinion thereon.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
May 31, 2016
Not applicable.
PART III
The information required by Part III is omitted from this report and will be included in an amendment to this report filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
|
Directors, Executive Officers and Corporate Governance
|
The information required by this item will be contained in an amendment to this Annual Report on Form 10-K.
Item 11.
|
Executive Compensation
|
The information required by this item will be contained in an amendment to this Annual Report on Form 10-K.
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The information required by this item will be contained in an amendment to this Annual Report on Form 10-K.
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
The information required by this item will be contained in an amendment to this Annual Report on Form 10-K.
|
Principal Accounting Fees and Services
|
The information required by this item will be contained in an amendment to this Annual Report on Form 10-K.
PART IV
Item 15.
|
Exhibits and Financial Statement Schedules
|
(a) |
The following financial statements, schedules and exhibits are filed as part of this report: |
1. |
Financial Statements - The Financial Statements required by this item are listed on the Index to Consolidated Financial Statements in Part II, Item 8 of this report, which is incorporated by reference herein. |
2. |
Financial Statement Schedules - |
|
· |
Schedule II – Valuation and Qualifying Accounts and Reserves |
|
· |
Other financial statement schedules are not included because they are not required or the information is otherwise shown in the consolidated financial statements or notes thereto. |
3. |
Exhibits - The exhibits listed on the accompanying Exhibit Index are filed as part of, or are incorporated by reference into, this report. |
(b)
|
See Item 15(a)(3) above.
|
(c)
|
See Item 15(a)(2) above.
|
Abaxis, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years ended March 31, 2016, 2015 and 2014
Description
|
|
Balance at
Beginning of
Year
|
|
|
Additions
Charged to
Expenses
|
|
|
Deductions
from Reserves (a)
|
|
|
Balance at End
of Year
|
|
Total Reserve for Doubtful Accounts and Sales Allowances (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2016
|
|
$
|
247,000
|
|
|
$
|
366,000
|
|
|
$
|
(134,000
|
)
|
|
$
|
479,000
|
|
Year ended March 31, 2015
|
|
$
|
182,000
|
|
|
$
|
(24,000
|
)
|
|
$
|
89,000
|
|
|
$
|
247,000
|
|
Year ended March 31, 2014
|
|
$
|
319,000
|
|
|
$
|
182,000
|
|
|
$
|
(319,000
|
)
|
|
$
|
182,000
|
|
(a) |
The deductions related to allowances for doubtful accounts represent net balance of accounts receivable which were written off and recovered. |
(b) |
The reserve for doubtful accounts and sales allowance is presented on a consolidated basis. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 31, 2016.
|
ABAXIS, INC.
|
|
|
|
By:
|
/s/ Clinton H. Severson
|
|
|
Clinton H. Severson
|
|
|
Chairman of the Board and Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Clinton H. Severson and Ross Taylor, and each of them, acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/ Clinton H. Severson
|
Chief Executive Officer and Director
|
May 31, 2016
|
Clinton H. Severson
|
(Principal Executive Officer)
|
|
|
|
|
/s/ Ross Taylor
|
Chief Financial Officer and Vice President of Finance
(Principal Financial and Accounting Officer)
|
May 31, 2016
|
Ross Taylor
|
|
|
|
|
|
/s/ Vernon E. Altman
|
Director
|
May 31, 2016
|
Vernon E. Altman
|
|
|
|
|
|
/s/ Richard J. Bastiani, Ph.D.
|
Director
|
May 31, 2016
|
Richard J. Bastiani, Ph.D.
|
|
|
|
|
|
/s/ Michael D. Casey
|
Director
|
May 31, 2016
|
Michael D. Casey
|
|
|
|
|
|
/s/ Henk J. Evenhuis
|
Director
|
May 31, 2016
|
Henk J. Evenhuis
|
|
|
|
|
|
/s/ Prithipal Singh, Ph.D.
|
Director
|
May 31, 2016
|
Prithipal Singh, Ph.D.
|
|
|
Exhibit
No.
|
Description of Document
|
3.1
|
Amended and Restated Articles of Incorporation, as amended (filed with the Securities and Exchange Commission on May 30, 2014 as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 and incorporated herein by reference).
|
|
|
3.2
|
By-laws, as amended (filed with the Securities and Exchange Commission on May 30, 2014 as Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 and incorporated herein by reference).
|
|
|
4.1
|
Form of Warrant to Purchase Shares of Common Stock of Abaxis, Inc. issued to the National Institute for Strategic Technology Acquisition and Commercialization (filed with the Securities and Exchange Commission on June 13, 2011 as Exhibit 4.3 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 and incorporated herein by reference).
|
|
|
10.1
|
Lease Agreement with Principal Development Investors, LLC, dated June 21, 2000 (filed with the Securities and Exchange Commission on January 10, 2001 as Exhibit 10.10 to our Registration Statement on Form S-3 and incorporated herein by reference).
|
|
|
10.2*
|
Amended and Restated Executive Employment Agreement with Mr. Clinton H. Severson, dated October 27, 2010 (filed with the Securities and Exchange Commission on February 9, 2011 as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 and incorporated herein by reference).
|
|
|
10.3*
|
2005 Equity Incentive Plan, as amended and restated through November 8, 2012 (filed with the Securities and Exchange Commission on February 11, 2013 as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 and incorporated herein by reference).
|
|
|
10.4*
|
Form of Notice of Grant of Restricted Stock Units (time vesting) under the 2005 Equity Incentive Plan (filed with the Securities and Exchange Commission on June 14, 2013 as Exhibit 10.7 to our Annual Report on Form 10-K for the year ended March 31, 2013 and incorporated herein by reference).
|
|
|
10.5*
|
Form of Notice of Grant of Restricted Stock Units (performance vesting) under the 2005 Equity Incentive Plan (filed with the Securities and Exchange Commission on June 14, 2013 as Exhibit 10.8 to our Annual Report on Form 10-K for the year ended March 31, 2013 and incorporated herein by reference).
|
|
|
10.6*
|
2014 Equity Incentive Plan (filed with the Securities and Exchange Commission on October 22, 2014 as Exhibit 99.2 to our Registration Statement on Form S-8 (File No. 333-199518) and incorporated herein by reference).
|
|
|
10.7*
|
Forms of Restricted Stock Unit (time vesting) Grant Notice and Award Agreements under the Abaxis, Inc. 2014 Equity Incentive Plan (filed with the Securities and Exchange Commission on February 9, 2015 as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2014 and incorporated herein by reference).
|
|
|
10.8*
|
Forms of Restricted Stock Unit (performance vesting) Grant Notice and Award Agreements under the Abaxis, Inc. 2014 Equity Incentive Plan (filed with the Securities and Exchange Commission on February 9, 2015 as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2014 and incorporated herein by reference).
|
|
|
10.9*
|
Abaxis, Inc. Executive Change of Control Severance Plan, as amended as of December 23, 2008 (filed with the Securities and Exchange Commission on February 9, 2009 as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 and incorporated herein by reference).
|
|
|
10.10*
|
Fiscal 2016 Base Salary and Target Bonus for the Named Executive Officers (filed with the Securities and Exchange Commission on May 4, 2015 as a part of our Current Report on Form 8-K and incorporated herein by reference).
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10.11*
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Form of Indemnity Agreement entered into by Abaxis, Inc. with each of its directors and executive officers (filed with the Securities and Exchange Commission on June 13, 2008 as Exhibit 10.22 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2008 and incorporated herein by reference).
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10.12*
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Transition Agreement between Abaxis, Inc. and Alberto Santa Ines, dated May 1, 2015 (filed with the Securities and Exchange Commission on May 4, 2015 as Exhibit 99.1 to our Current Report on Form 8-K and incorporated herein by reference).
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10.13*
|
Offer Letter Agreement between Abaxis, Inc. and Dean Ross Taylor, dated April 29, 2015 (filed with the Securities and Exchange Commission on May 4, 2015 as Exhibit 99.2 to our Current Report on Form 8-K and incorporated herein by reference).
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10.14*
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Transition Agreement between Abaxis, Inc. and Vladimir E. Ostoich, Ph.D., dated August 15, 2014 (filed with the Securities and Exchange Commission on August 21, 2014 as Exhibit 10.1 to our Current Report on Form 8-K and incorporated by reference).
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10.15*
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Executive Employment Agreement, dated as of May 1, 2014, with Craig M. Tockman (filed with the Securities and Exchange Commission on August 11, 2014 as Exhibit 10.1 to our Quarterly Report on Form 10-K for the quarter ended June 30, 2014 and incorporated herein by reference).
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10.16
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First Amendment to Lease Agreement with Principal Development Investors, LLC, dated as of August 28, 2000 (filed with the Securities and Exchange Commission on June 14, 2010 as Exhibit 10.23 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and incorporated herein by reference).
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10.17
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Second Amendment to Lease Agreement with Principal Development Investors, LLC, dated as of November 20, 2000 (filed with the Securities and Exchange Commission on June 14, 2010 as Exhibit 10.24 with our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and incorporated herein by reference).
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10.18
|
Third Amendment to Lease Agreement with Crossroads Technology Partners and Nearon Crossroads, LLC, as successors in interest to Principal Development Investors, LLC, dated as of April 10, 2002 (filed with the Securities and Exchange Commission on June 14, 2010 as Exhibit 10.25 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and incorporated herein by reference).
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10.19
|
Fourth Amendment to Lease Agreement with Whipple Road Holdings, LLC, SFP Crossroads, LLC and Woodstock Bowers, LLC, dated March 11, 2010 (filed with the Securities and Exchange Commission on June 14, 2010 as Exhibit 10.26 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and incorporated herein by reference).
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10.20+
|
Exclusive Agreement, dated October 26, 2012, by and between Abaxis, Inc. and Abbott Point of Care, Inc. (filed with the Securities and Exchange Commission on July 2, 2013 as Exhibit 10.1 to the Amendment to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 and incorporated herein by reference).
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10.21
|
Non-Exclusive Distributor Agreement, dated as of September 28, 2012, by and between MWI Veterinary Supply, Inc. (“MWI”) and Abaxis, Inc. (filed with the Securities and Exchange Commission on November 27, 2012 as Exhibit 10.27 to MWI’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and incorporated herein by reference).
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10.22
|
Amendment to Exclusive Agreement between Abaxis, Inc. and Abbott Point of Care Inc., dated September 30, 2013 (filed with the Securities and Exchange Commission on November 12, 2013 as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference).
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10.23+
|
Asset Purchase Agreement, dated as of March 19, 2015, between Antech Diagnostics, Inc. and Abaxis, Inc. (filed with the Securities and Exchange Commission on June 1, 2015 as Exhibit 10.25 to our Annual Report on Form 10-K for the year ended March 31, 2015 and incorporated herein by reference).
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10.24*
|
Service Agreement between Abaxis Europe GmbH, Abaxis, Inc. and Achim Henkel, dated May 30, 2008 (filed with the Securities and Exchange Commission on July 29, 2015 as Exhibit 10.26 to Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended March 31, 2015 and incorporated herein by reference).
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10.25
|
Fifth Amendment to Lease Agreement, dated as of December 17, 2015, among Abaxis, Inc. and Whipple Road Holdings, LLC, SFP Crossroads, LLC and Woodstock Bowers, LLC (filed with the Securities and Exchange Commission on February 9, 2016 as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2015 and incorporated herein by reference).
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10.26*
|
Fiscal 2017 Base Salary and Target Bonus for the Named Executive Officers (filed with the Securities and Exchange Commission on April 28, 2016 as a part of our Current Report on Form 8-K and incorporated herein by reference).
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Distribution Agreement, dated as of October 1, 2014, between Patterson Management, LP and Abaxis, Inc.
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Subsidiaries of Abaxis, Inc.
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Consent of Burr Pilger Mayer, Inc., Independent Registered Public Accounting Firm
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24.1
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Power of Attorney (included on the Signature Page hereto).
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
|
XBRL Instance Document.
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101.SCH
|
XBRL Taxonomy Extension Schema Document.
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101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
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101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document.
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101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
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101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
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+ Confidential treatment of certain portions of this agreement has been granted by the Securities and Exchange Commission.
++ Confidential treatment of certain portions of this agreement has been requested from the Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.
# This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.