NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of
February 28, 2019
, the consolidated statement of stockholders’ equity for the three and
nine
months ended
February 28, 2019
and
2018
, and the consolidated statements of income, consolidated statements of comprehensive income for the
three and nine
months ended
February 28, 2019
and
2018
, and consolidated statements of cash flows for the
nine
months ended
February 28, 2019
and
2018
, have been prepared by us and are unaudited. The consolidated balance sheet as of
May 31, 2018
was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to state fairly the financial position, changes in stockholders’ equity and comprehensive income, results of operations and cash flows as of and for the period ended
February 28, 2019
(and for all periods presented) have been made.
The unaudited interim consolidated financial statements for the
three and nine
months ended
February 28, 2019
and
2018
include the accounts of AngioDynamics, Inc. and its wholly owned subsidiaries, collectively, the “Company”. All intercompany balances and transactions have been eliminated.
2. ACQUISITIONS
RadiaDyne Acquisition
On September 21, 2018, the Company acquired RadiaDyne, a privately held medical diagnostic and device company that designs and develops patient dose monitoring technology to improve cancer treatment outcomes. The aggregate purchase price of
$75.0 million
included an upfront payment of
$47.9 million
, contingent consideration with an estimated fair value of
$22.3 million
, an indemnification holdback of
$4.6 million
and a purchase price holdback of
$0.2 million
. The fair value of
$22.3 million
in contingent consideration is comprised of
$16.5 million
for the revenue milestones and
$5.8 million
for the technical milestones. The
$4.6 million
indemnification holdback is recorded in other long-term liabilities and the
$0.2 million
purchase price holdback was initially recorded in accrued liabilities, but was paid during the third quarter of fiscal year 2019.
This acquisition expands the Company’s growing Oncology business by adding RadiaDyne’s early-stage, proprietary OARtrac® real-time radiation dose monitoring platform and other market-leading oncology solutions, including the IsoLoc®/ImmobiLoc® and Alatus® balloon stabilizing technologies.
The Company accounted for the RadiaDyne acquisition under the acquisition method of accounting for business combinations. Accordingly, the cost to acquire the assets was allocated to the underlying net assets in proportion to estimates of their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. Goodwill is deductible for income tax purposes.
The Company has not disclosed the amount of revenue and earnings for sales of RadiaDyne products since acquisition, nor proforma information, because these amounts are not significant to the Company's financial statements. Acquisition-related costs associated with the RadiaDyne acquisition, which are included in acquisition, restructuring and other expenses, net in the accompanying consolidated statements of income, were approximately
$1.6 million
. The following table summarizes the preliminary and revised aggregate purchase price allocated to the net assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary allocation
|
|
Adjustments
(1)
|
|
Revised allocation
|
(in thousands)
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
900
|
|
|
$
|
—
|
|
|
$
|
900
|
|
Inventory
|
|
732
|
|
|
—
|
|
|
732
|
|
Prepaid and other current assets
|
|
98
|
|
|
—
|
|
|
98
|
|
Property, plant and equipment
|
|
133
|
|
|
—
|
|
|
133
|
|
Intangible assets:
|
|
|
|
|
|
|
RadiaDyne trademark
|
|
400
|
|
|
—
|
|
|
400
|
|
OARtrac trademark
|
|
200
|
|
|
—
|
|
|
200
|
|
RadiaDyne legacy product technology
|
|
1,500
|
|
|
—
|
|
|
1,500
|
|
OARtrac product technology
|
|
16,300
|
|
|
2,600
|
|
|
18,900
|
|
RadiaDyne customer relationships
|
|
3,700
|
|
|
600
|
|
|
4,300
|
|
Goodwill
|
|
51,482
|
|
|
(3,200
|
)
|
|
48,282
|
|
Total assets acquired
|
|
$
|
75,445
|
|
|
$
|
—
|
|
|
$
|
75,445
|
|
Liabilities assumed
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
352
|
|
|
$
|
—
|
|
|
$
|
352
|
|
Accrued expenses
|
|
106
|
|
|
—
|
|
|
106
|
|
Total liabilities assumed
|
|
$
|
458
|
|
|
$
|
—
|
|
|
$
|
458
|
|
Net assets acquired
|
|
$
|
74,987
|
|
|
$
|
—
|
|
|
$
|
74,987
|
|
(1)
Measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments for the periods presented. Amounts represent adjustments to the preliminary purchase price allocation first presented in the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2018 resulting from revising the Company's purchase price allocation for this acquisition.
The allocation of the purchase price to the assets acquired and liabilities assumed, including the amount allocated to goodwill, is subject to change within the measurement period (up to one year from the acquisition date) as additional information that existed at the date of the acquisition related to the values of assets acquired and liabilities assumed is obtained.
The values assigned to the RadiaDyne and OARtrac trademark and product technologies were derived using the relief-from-royalties method under the income approach. This approach is used to estimate the cost savings that accrue for the owner of an intangible asset who would otherwise have to pay royalties or licensing fees on revenues earned through the use of the asset if they had not owned the rights to use the assets. The net after-tax royalty savings are calculated for each year in the remaining economic life of the intangible asset and discounted to present value. The trademarks are deemed to have a useful life of
five
to
seven years
and the product technologies are deemed to have a useful life of
seven
to
ten years
. Both are amortized on a straight-line basis over their useful life.
The value assigned to customer relationships was derived using the multi-period excess earnings method under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. Customer relationships are amortized on a straight-line basis over
fifteen years
.
The goodwill arising from the acquisition consists largely of synergies and economies of scale the Company hopes to achieve from combining the acquired assets with the Company's current operations.
BioSentry Acquisition
On August 14, 2018, the Company acquired the BioSentry product from Surgical Specialties, LLC (“SSC”), for an aggregate purchase price of
$39.8 million
of which
$37.0 million
was paid on August 14, 2018 and
$2.8 million
was recorded as contingent consideration. The contingent consideration liability was recorded at fair value and will be payable to SSC upon fulfillment of certain hydrogel orders.
The Company accounted for the BioSentry acquisition under the acquisition method of accounting for business combinations. Accordingly, the cost to acquire the assets was allocated to the underlying net assets in proportion to estimates of their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. Goodwill is deductible for income tax purposes.
The Company has not disclosed the amount of revenue and earnings for sales of BioSentry products since acquisition, nor proforma information, because these amounts are not significant to the Company's financial statements. Acquisition-related costs associated with the BioSentry acquisition, which are included in acquisition, restructuring and other expenses, net in the accompanying consolidated statements of income, were approximately
$1.0 million
. The following table summarizes the preliminary and revised aggregate purchase price allocated to the net assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary allocation
|
|
Adjustments
(1)
|
|
Revised allocation
|
(in thousands)
|
|
|
|
|
|
|
Inventory
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
50
|
|
Property, plant and equipment
|
|
10
|
|
|
—
|
|
|
10
|
|
Intangible assets:
|
|
|
|
|
|
|
BioSentry trademark
|
|
1,700
|
|
|
800
|
|
|
2,500
|
|
BioSentry product technology
|
|
13,800
|
|
|
7,100
|
|
|
20,900
|
|
Customer relationships
|
|
2,500
|
|
|
(300
|
)
|
|
2,200
|
|
Goodwill
|
|
21,740
|
|
|
(7,600
|
)
|
|
14,140
|
|
Net assets acquired
|
|
$
|
39,800
|
|
|
$
|
—
|
|
|
$
|
39,800
|
|
(1)
Measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments for the periods presented. Amounts represent adjustments to the preliminary purchase price allocation first presented in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2018 resulting from revising the Company's purchase price allocation for this acquisition.
The allocation of the purchase price to the assets acquired and liabilities assumed, including the amount allocated to goodwill, is subject to change within the measurement period (up to one year from the acquisition date) as additional information that existed at the date of the acquisition related to the values of assets acquired and liabilities assumed is obtained.
The values assigned to the BioSentry trademark and product technologies were derived using the relief-from-royalties method under the income approach. This approach is used to estimate the cost savings that accrue for the owner of an intangible asset who would otherwise have to pay royalties or licensing fees on revenues earned through the use of the asset if they had not owned the rights to use the assets. The net after-tax royalty savings are calculated for each year in the remaining economic life of the intangible asset and discounted to present value. The trademark and product technologies are deemed to have a fifteen year useful life and are amortized on a straight-line basis over their useful life.
The value assigned to customer relationships was derived using the multi-period excess earnings method under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. Customer relationships are amortized on a straight-line basis over
ten years
.
The goodwill arising from the acquisition consists largely of synergies and economies of scale the Company hopes to achieve from combining the acquired assets with the Company's current operations.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Adoption of ASC Topic 606 "
Revenue from Contracts with Customers
"
The Company adopted ASC 606,
Revenue from Contracts with Customers
on June 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for fiscal 2019 reflect the application of ASC 606 guidance while the reported results for fiscal 2018 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”). For discussion of the Company’s accounting policy for revenue recognition under ASC 605, refer to Item 8 of the Annual Report on Form 10-K for the year ended May 31, 2018. The adoption of ASC 606 did not have an impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date or for the periods presented, other than the enhanced disclosures included in this footnote.
Revenue Recognition
Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company has one primary revenue stream which is the sales of its products.
Disaggregation of Revenue
The following tables summarize net product revenue by Global Business Unit ("GBU") and geography for the
three and nine
months ended
February 28, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended February 28, 2019
|
(in thousands)
|
United States
|
|
International
|
|
Total
|
Net sales
|
|
|
|
|
|
Vascular Interventions & Therapies
|
$
|
41,225
|
|
|
$
|
8,890
|
|
|
$
|
50,115
|
|
Vascular Access
|
18,952
|
|
|
3,396
|
|
|
22,348
|
|
Oncology
|
8,154
|
|
|
5,724
|
|
|
13,878
|
|
Total
|
$
|
68,331
|
|
|
$
|
18,010
|
|
|
$
|
86,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended February 28, 2019
|
(in thousands)
|
United States
|
|
International
|
|
Total
|
Net sales
|
|
|
|
|
|
Vascular Interventions & Therapies
|
$
|
126,089
|
|
|
$
|
26,514
|
|
|
$
|
152,603
|
|
Vascular Access
|
59,480
|
|
|
10,381
|
|
|
69,861
|
|
Oncology
|
22,329
|
|
|
18,391
|
|
|
40,720
|
|
Total
|
$
|
207,898
|
|
|
$
|
55,286
|
|
|
$
|
263,184
|
|
Net Product Revenue
The Company's products consist of a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings. The Company's devices are generally used in minimally invasive, image-guided procedures. Most of the Company's products are intended to be used once and then discarded, or they may be temporarily implanted for short- or longer-term use. The Company sells its products to its distribution partners and to end users, such as interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses.
Contracts and Performance Obligations
The Company contracts with its customers based on customer purchase orders, which in many cases are governed by master purchasing agreements. The Company’s contracts with customers are generally for product only, and do not include other performance obligations such as services or other material rights. As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations.
Transaction Price and Allocation to Performance Obligations
Transaction prices of products are typically based on contracted rates. Product revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method. As such, revenue is recorded net of rebates, returns and other deductions.
If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products underlying each performance obligation. The Company has standard pricing for its products and determines standalone selling prices based on the price at which the performance obligation is sold separately.
Revenue Recognition
Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which occurs at a point in time, and may be upon shipment from the Company’s manufacturing site or delivery to the customer’s named location, based on the contractual shipping terms of a contract.
In determining whether control has transferred, the Company considers if there is a present right to payment from the customer and when physical possession, legal title and risks and rewards of ownership have transferred to the customer.
The Company typically invoices customers upon satisfaction of identified performance obligations. As the Company’s standard payment terms are
30
to
90 days
from invoicing, the Company does not provide any significant financing to its customers.
Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established for discounts, returns, rebates and allowances that are offered within contracts between the Company and its customers. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as a current liability.
Rebates and Allowances:
The Company provides certain customers with rebates and allowances that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. The Company establishes a liability for such amounts, which is included in accrued expenses in the accompanying condensed consolidated balance sheets. These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes and administrative fees the Company is required to pay to group purchasing organizations.
Product Returns: The Company generally offers customers a limited right of return. Product returns after
30 days
must be pre-approved by the Company and customers may be subject to a
20%
restocking charge. To be accepted, a returned product must be unadulterated, undamaged and have at least
twelve months
remaining prior to its expiration date. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using its historical product return information and considers other factors that it believes could significantly impact its expected returns, including product recalls. During the
nine
months ended
February 28, 2019
, such product returns were not material.
Contract Balances with Customers
A receivable is recognized in the period the Company ships the product. Payment terms on invoiced amounts are based on contractual terms with each customer and generally coincide with revenue recognition. Accordingly, the Company does not have any contract assets associated with the future right to invoice its customers. In some cases, if control of the product has not yet transferred to the customer or the timing of the payments made by the customer precedes the Company’s fulfillment of the performance obligation, the Company recognizes a contract liability that is included in deferred revenue in the accompanying condensed consolidated balance sheets.
The following table presents changes in the Company’s receivables, contract assets and contract liabilities with customers:
|
|
|
|
|
|
|
|
|
|
Feb 28, 2019
|
|
May 31, 2018
|
(in thousands)
|
|
|
|
Receivables
|
$
|
44,208
|
|
|
$
|
39,401
|
|
Contract assets
|
$
|
—
|
|
|
$
|
—
|
|
Contract liabilities
|
$
|
1,047
|
|
|
$
|
1,203
|
|
During the
nine
months ended
February 28, 2019
, the Company recognized
$0.7 million
in revenue that was included in contract liabilities as of the beginning of the period. This was offset by additions to contract liabilities of
$0.6 million
.
Costs to Obtain or Fulfill a Customer Contract
Prior to the adoption of ASC 606, the Company expensed incremental commissions paid to sales representatives for obtaining product sales. Under ASC 606, the Company recognizes an asset for incremental costs of obtaining a contract with a customer if it expects to recover those costs. The Company’s sales incentive compensation plans qualify for capitalization since these plans are directly related to sales achieved during a period of time. However, the Company has elected the practical expedient under ASC 340-40-25-4 to expense the costs as they are incurred within selling and marketing expenses since the amortization period is less than one year.
The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs, associated with the distribution of finished products to customers, are recorded in costs of goods sold and are recognized when the related finished product is shipped to the customer. Amounts charged to customers for shipping are recorded in net sales.
4. INVENTORIES
Inventories are stated at lower of cost and net realizable value (using the first-in, first-out method). Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
Feb 28, 2019
|
|
May 31, 2018
|
(in thousands)
|
|
|
|
Raw materials
|
$
|
19,852
|
|
|
$
|
18,678
|
|
Work in process
|
11,210
|
|
|
10,808
|
|
Finished goods
|
21,326
|
|
|
19,430
|
|
Inventories
|
$
|
52,388
|
|
|
$
|
48,916
|
|
The Company periodically reviews for both obsolescence and loss of value. The Company makes assumptions about the future demand for and market value of the inventory. Based on these assumptions, the Company estimates the amount of obsolete, expiring and slow moving inventory. The total inventory reserve at
February 28, 2019
and May 31, 2018 was
$5.1 million
and
$6.1 million
, respectively. Of the
$5.1 million
reserve as of
February 28, 2019
,
$0.4 million
relates to the inventory reserve for Acculis inventory as a result of the recall announced in the fourth quarter of fiscal year 2017 and
$0.7 million
relates to a specific reserve related to the termination of an agreement with a Japanese distributor in the second quarter of fiscal year 2018. Of the
$6.1 million
reserve as of May 31, 2018,
$1.6 million
relates to the inventory reserve for Acculis inventory as a result of the recall announced in the fourth quarter of fiscal year 2017 and
$0.7 million
relates to a specific reserve related to the termination of an agreement with a Japanese distributor in the second quarter of fiscal year 2018.
5. GOODWILL AND INTANGIBLE ASSETS
Intangible assets other than goodwill are amortized over their estimated useful lives on either a straight-line basis or proportionately to the benefit being realized. Useful lives range from
two
to
eighteen years
. The Company periodically reviews the estimated useful lives of its intangible assets and reviews such assets or asset groups for impairment whenever events or changes in circumstances indicate that the carrying value of the assets or asset groups may not be recoverable. If an intangible asset or asset group is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.
Goodwill is not amortized, but rather, is tested for impairment annually or more frequently if impairment indicators arise. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.
The Company's annual testing for impairment of goodwill was completed as of December 31, 2018. The Company operates as a single operating segment with
one
reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. The Company determines the fair value of the reporting unit based on the market valuation approach and concluded that it was not more-likely-than-not that the fair value of the Company's reporting unit was less than its carrying value.
Even though the Company determined that there was
no
goodwill impairment as of December 31, 2018, the future occurrence of a potential indicator of impairment, such as a significant adverse change in legal, regulatory, business or economic conditions or a more-likely-than-not expectation that the reporting unit or a significant portion of the reporting unit will be sold or disposed of, would require an interim assessment for the reporting unit prior to the next required annual
assessment as of December 31, 2019. The Company continued to assess for potential impairment through
February 28, 2019
and noted no events that would be considered a triggering event.
The changes in the carrying amount of goodwill for the
nine
months ended
February 28, 2019
were as follows:
|
|
|
|
|
(in thousands)
|
|
Goodwill balance at May 31, 2018
|
$
|
361,252
|
|
Additions for BioSentry acquisition (Note 2)
|
14,140
|
|
Additions for RadiaDyne acquisition (Note 2)
|
48,282
|
|
Goodwill balance at February 28, 2019
|
$
|
423,674
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb 28, 2019
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Net carrying
value
|
(in thousands)
|
|
|
|
|
|
Product technologies
|
$
|
188,475
|
|
|
$
|
(77,772
|
)
|
|
$
|
110,703
|
|
Customer relationships
|
62,890
|
|
|
(26,363
|
)
|
|
36,527
|
|
Trademarks
|
31,500
|
|
|
(13,752
|
)
|
|
17,748
|
|
Licenses
|
5,752
|
|
|
(4,867
|
)
|
|
885
|
|
Distributor relationships
|
1,250
|
|
|
(549
|
)
|
|
701
|
|
|
$
|
289,867
|
|
|
$
|
(123,303
|
)
|
|
$
|
166,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2018
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Net carrying
value
|
(in thousands)
|
|
|
|
|
|
Product technologies
|
$
|
147,175
|
|
|
$
|
(68,880
|
)
|
|
$
|
78,295
|
|
Customer relationships
|
56,428
|
|
|
(23,237
|
)
|
|
33,191
|
|
Trademarks
|
28,400
|
|
|
(11,809
|
)
|
|
16,591
|
|
Licenses
|
5,752
|
|
|
(4,357
|
)
|
|
1,395
|
|
Distributor relationships
|
1,250
|
|
|
(412
|
)
|
|
838
|
|
|
$
|
239,005
|
|
|
$
|
(108,695
|
)
|
|
$
|
130,310
|
|
Amortization expense for the three months ended
February 28, 2019
and
2018
was
$5.3 million
and
$4.2 million
, respectively. Amortization expense for the
nine
months ended
February 28, 2019
and
2018
was
$14.6 million
and
$12.4 million
, respectively.
Expected future amortization expense related to the intangible assets is as follows:
|
|
|
|
|
(in thousands)
|
|
Remainder of 2019
|
$
|
5,168
|
|
2020
|
18,955
|
|
2021
|
17,795
|
|
2022
|
16,910
|
|
2023
|
16,459
|
|
2024 and thereafter
|
91,277
|
|
|
$
|
166,564
|
|
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
Feb 28, 2019
|
|
May 31, 2018
|
(in thousands)
|
|
|
|
Payroll and related expenses
|
$
|
10,499
|
|
|
$
|
10,235
|
|
Royalties
|
1,645
|
|
|
1,537
|
|
Accrued severance
|
789
|
|
|
1,940
|
|
Sales and franchise taxes
|
870
|
|
|
683
|
|
Outside services
|
3,033
|
|
|
2,396
|
|
Litigation matters
|
—
|
|
|
12,500
|
|
Other
|
5,093
|
|
|
5,135
|
|
|
$
|
21,929
|
|
|
$
|
34,426
|
|
7. LONG TERM DEBT
On November 7, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Keybank National Association as co-syndication agents, and JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Keybank National Association as joint bookrunners and joint lead arrangers.
The Credit Agreement provides for a
$100.0 million
senior secured term loan facility (“Term Loan”) and a
$150.0 million
senior secured revolving credit facility, which includes up to a
$20.0 million
sublimit for letters of credit and a
$5.0 million
sublimit for swingline loans (the “Revolving Facility”, and together with the Term Loan, the “Facilities”).
On November 7, 2016, the Company borrowed
$100.0 million
under the Term Loan and approximately
$16.5 million
under the Revolving Facility to repay the balance of
$116.5 million
under the former credit agreement. In September 2018, the Company borrowed
$55.0 million
on the Revolving Facility for the RadiaDyne acquisition. In January 2019, the Company paid down
$10.0 million
on the
$55.0 million
draw. As of
February 28, 2019
, the outstanding balance on the Revolving Facility was
$45.0 million
. As of
February 28, 2019
and
May 31, 2018
the carrying value of long-term debt approximates its fair market value.
The interest rate on the Term Loan at
February 28, 2019
was
4.00%
.
The Company was in compliance with the Credit Agreement covenants as of
February 28, 2019
.
The Company's maturities of principal obligations under the Credit Agreement are as follows, as of
February 28, 2019
:
|
|
|
|
|
(in thousands)
|
|
Remainder of 2019
|
$
|
1,250
|
|
2020
|
7,500
|
|
2021
|
11,250
|
|
2022
|
68,750
|
|
Total term loan
|
88,750
|
|
Revolving facility
(1)
|
45,000
|
|
Total debt
|
133,750
|
|
Less: Unamortized debt issuance costs
|
(663
|
)
|
Total
|
133,087
|
|
Less: Current portion of long-term debt
|
(6,250
|
)
|
Total long-term debt, net
|
$
|
126,837
|
|
(1) The Revolving Facility is due in fiscal year 2022.
8. INCOME TAXES
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year adjusted for any discrete events, which are recorded in the period that they occur. The estimated annual effective tax rate prior to discrete items was
25.3%
in the
third
quarter of fiscal
2019
, as compared to
4.9%
for the same period in fiscal
2018
. In fiscal 2019, the Company’s effective tax rate differs from the U.S. statutory rate primarily due to the impact of the valuation allowance, foreign taxes and state taxes.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, implementing a territorial tax system, expanding the tax base and imposing a tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.
In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The Company elected to apply the measurement period guidance provided in SAB 118. As of February 28, 2019, the accounting for all of the enactment-date income tax effects of the Tax Reform Act was complete and any changes are noted below.
The Tax Reform Act imposed a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. Based on the information available as of December 31, 2017, the Company estimated undistributed foreign earnings of approximately
$4.9 million
. Upon further analysis, and refinement of the calculation during the 12 months ended February 28, 2019, the Company adjusted its provisional amount by
$1.1 million
to
$3.8 million
. The taxable income of
$3.8 million
arising from this deemed repatriation will continue to result in the utilization of net operating loss carryforwards, offset by changes in the valuation allowance, resulting in no net impact to tax expense. All other previously communicated tax impacts remain unchanged and complete.
The Tax Reform Act also creates a new requirement that certain income earned by foreign subsidiaries (“GILTI”), must be included in U.S. gross income. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current period expense when incurred. The Company has elected to account for the GILTI tax as a current-period expense when incurred (the “period cost method”).
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for its deferred tax assets in fiscal 2016, except the naked credit deferred tax liability.
Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence. Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of
February 28, 2019
. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations.
9. SHARE-BASED COMPENSATION
The Company has two stock-based compensation plans that provide for the issuance of up to approximately
11.3 million
shares of common stock. The 2004 Stock and Incentive Award Plan (the "2004 Plan") provides for the grant of incentive options to the Company's employees and for the grant of non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other incentive awards to the Company's employees, directors and other service providers. The Company also has an employee stock purchase plan.
For the three months ended
February 28, 2019
and
2018
, share-based compensation expense was
$2.4 million
and
$2.1 million
, respectively. For the
nine
months ended
February 28, 2019
and
2018
, share-based compensation expense was
$7.1 million
and
$5.8 million
, respectively.
During the
nine
months ended
February 28, 2019
and
2018
, the Company granted stock options and restricted stock units under the 2004 Plan to certain employees and members of the Board of Directors. Stock option awards are valued using the Black-Scholes option-pricing model and then amortized on a straight-line basis over the requisite service period of the award. Restricted stock unit awards are valued based on the closing trading value of the Company's shares on the date of grant and then amortized on a straight-line basis over the requisite service period of the award.
In the first
nine
months of fiscal year
2019
, the Company granted market-based performance share awards under the 2004 Plan to certain employees. The awards may be earned by achieving relative performance levels over the
three year
requisite service period. The performance criteria are based on the total shareholder return ("TSR") of the Company's common stock relative to the TSR of the common stock of a pre-defined industry peer-group. The fair value of these awards are based on the closing trading value of the Company's shares on the date of grant and use a Monte Carlo simulation model.
As of
February 28, 2019
, there was
$15.2 million
of unrecognized compensation expense related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately
four years
. The Company has sufficient shares to satisfy expected share-based payment arrangements.
10. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share includes the dilutive effect of potential common stock consisting of stock options, restricted stock units and performance stock units, provided that the inclusion of such securities is not anti-dilutive. In periods with a net loss, stock options and restricted stock units are not included in the computation of diluted loss per share as the impact would be anti-dilutive.
The following table reconciles basic to diluted weighted-average shares outstanding for the
three and nine
months ended
February 28, 2019
and
2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
Feb 28, 2019
|
|
Feb 28, 2018
|
|
Feb 28, 2019
|
|
Feb 28, 2018
|
Basic
|
37,518
|
|
|
37,122
|
|
|
37,446
|
|
|
37,031
|
|
Effect of dilutive securities
|
820
|
|
|
320
|
|
|
904
|
|
|
327
|
|
Diluted
|
38,338
|
|
|
37,442
|
|
|
38,350
|
|
|
37,358
|
|
|
|
|
|
|
|
|
|
Securities excluded as their inclusion would be anti-dilutive
|
2,293
|
|
|
1,259
|
|
|
2,293
|
|
|
1,139
|
|
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company considers the business to be a single operating segment engaged in the development, manufacture and sale of medical devices for vascular access, peripheral vascular disease and oncology on a global basis. The Company's chief operating decision maker, the President and Chief Executive Officer (CEO), evaluates the various global product portfolios on a net sales basis. Executives reporting to the CEO include those responsible for commercial operations, manufacturing operations, regulatory and quality and certain corporate functions. The CEO evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources.
The table below summarizes net sales by Global Business Unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine months ended
|
(in thousands)
|
Feb 28, 2019
|
|
Feb 28, 2018
|
|
Feb 28, 2019
|
|
Feb 28, 2018
|
Net sales
|
|
|
|
|
|
|
|
Vascular Interventions & Therapies
|
$
|
50,115
|
|
|
$
|
48,517
|
|
|
$
|
152,603
|
|
|
$
|
149,751
|
|
Vascular Access
|
22,348
|
|
|
23,279
|
|
|
69,861
|
|
|
69,091
|
|
Oncology
|
13,878
|
|
|
12,055
|
|
|
40,720
|
|
|
37,126
|
|
Total
|
$
|
86,341
|
|
|
$
|
83,851
|
|
|
$
|
263,184
|
|
|
$
|
255,968
|
|
The table below presents net sales by geographic area based on external customer location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine months ended
|
(in thousands)
|
Feb 28, 2019
|
|
Feb 28, 2018
|
|
Feb 28, 2019
|
|
Feb 28, 2018
|
Net sales
|
|
|
|
|
|
|
|
United States
|
$
|
68,331
|
|
|
$
|
65,787
|
|
|
$
|
207,898
|
|
|
$
|
203,020
|
|
International
|
18,010
|
|
|
18,064
|
|
|
55,286
|
|
|
52,948
|
|
Total
|
$
|
86,341
|
|
|
$
|
83,851
|
|
|
$
|
263,184
|
|
|
$
|
255,968
|
|
12. FAIR VALUE
On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. FASB ASC Topic 820,
Fair Value Measurements and Disclosures,
establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
|
|
•
|
Level 1 - Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
|
|
|
•
|
Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
|
|
|
•
|
Level 3 - Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
|
The Company's financial instruments include cash and cash equivalents, marketable securities, accounts receivable, accounts payable and contingent consideration. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the immediate or short-term maturities. The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate to the Company's marketable securities, which are comprised of auction rate securities, and contingent consideration.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of
February 28, 2019
and
May 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements using
inputs considered as:
|
|
Fair Value at February 28, 2019
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
Contingent consideration for acquisition earn outs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,127
|
|
|
$
|
27,127
|
|
Total Financial Liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,127
|
|
|
$
|
27,127
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements using
inputs considered as:
|
|
Fair Value at May 31, 2018
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
Short-term investments*
|
$
|
2,100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,100
|
|
Marketable securities
|
—
|
|
|
—
|
|
|
1,317
|
|
|
1,317
|
|
Total Financial Assets
|
$
|
2,100
|
|
|
$
|
—
|
|
|
$
|
1,317
|
|
|
$
|
3,417
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
Contingent consideration for acquisition earn outs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,261
|
|
|
$
|
3,261
|
|
Total Financial Liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,261
|
|
|
$
|
3,261
|
|
*Included in cash and cash equivalents.
There were no transfers between Level 1, 2 and 3 for the
three and nine
months ended
February 28, 2019
.
The table below presents the changes in fair value components of Level 3 instruments in the
three and nine
months ended
February 28, 2019
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended February 28, 2019
|
|
Financial Assets
|
|
Financial Liabilities
|
(in thousands)
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
Balance, November 30, 2018
|
$
|
1,350
|
|
|
$
|
26,518
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
Change in present value of contingent consideration (1)
|
—
|
|
|
609
|
|
Proceeds from sale of marketable securities
|
(1,350
|
)
|
|
—
|
|
Balance, February 28, 2019
|
$
|
—
|
|
|
$
|
27,127
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended February 28, 2019
|
|
Financial Assets
|
|
Financial Liabilities
|
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
Balance, May 31, 2018
|
$
|
1,317
|
|
|
$
|
3,261
|
|
Contingent consideration liability recorded as the result of the acquisitions (Note 2)
|
—
|
|
|
25,101
|
|
Change in present value of contingent consideration (1)
|
—
|
|
|
865
|
|
Fair market value adjustments
|
33
|
|
|
—
|
|
Proceeds from sale of marketable securities
|
(1,350
|
)
|
|
—
|
|
Contingent consideration payments
|
—
|
|
|
(2,100
|
)
|
Balance, February 28, 2019
|
$
|
—
|
|
|
$
|
27,127
|
|
(1) Change in the fair value of contingent consideration is included in earnings and comprised of changes in estimated earn out payments based on projections of Company performance and amortization of the present value discount.
Short-term Investments
Short-term investments consist of highly liquid investments in municipal bonds that reset on a weekly basis and can be called at any point in time.
Marketable Securities
Marketable securities consist solely of an auction rate security. Assumptions associated with the auction rate security include the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk.
Contingent Consideration for Acquisition Earn Outs
Some of the Company's business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones or various other performance conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or product development targets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within change in fair value of contingent consideration in the consolidated statements of income.
The Company measures the initial liability and remeasures the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. The fair value is determined using a discounted cash flow model applied to projected net sales, using probabilities of achieving projected net sales and projected payment dates. Projected
net sales are based on the Company's internal projections and extensive analysis of the target market and the sales potential. Increases or decreases in any valuation inputs in isolation may result in a significantly lower or higher fair value measurement in the future.
The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant unobservable inputs as of
February 28, 2019
:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
Revenue based payments
|
$
|
18,264
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
4% - 5%
|
|
|
|
|
|
Probability of payment
|
|
66% - 100%
|
|
|
|
|
|
Projected fiscal year of payment
|
|
2020 - 2023
|
Technical milestones
|
$
|
6,021
|
|
|
Estimated probability
|
|
Estimated probability
|
|
90%
|
|
|
|
|
|
Projected year of payment
|
|
2020
|
Supplier default holdback
|
$
|
2,842
|
|
|
Estimated probability
|
|
Estimated probability
|
|
95%
|
|
|
|
|
|
Projected fiscal year of payment
|
|
2019
|
Total
|
$
|
27,127
|
|
|
|
|
|
|
|
At
February 28, 2019
, the range of estimated potential undiscounted future contingent consideration that the Company expects to pay as a result of all completed acquisitions is approximately
$31.2 million
to $
41.2 million
. The milestones, including revenue projections and technical milestones, associated with the contingent consideration must be reached in future periods ranging from fiscal years 2019 to 2023 in order for the associated consideration to be paid.
13. MARKETABLE SECURITIES
Marketable securities, which can be government agency bonds, auction rate investments or corporate commercial paper, are classified as “available-for-sale securities” and are reported at fair value, with unrealized gains and losses excluded from operations and reported as accumulated other comprehensive income (loss), net of related tax effects, in stockholders' equity. Cost is determined using the specific identification method. The Company held an investment in an auction rate security that had high credit quality and generally achieved with municipal bond insurance. Sell orders for any security traded through an auction process could exceed bids and, in such cases, the auction fails and the Company may be unable to liquidate its position in the security in the near term. The Company sold the investment in the auction rate security during January 2019. As of
May 31, 2018
, the Company had a
$1.3 million
investment in
one
auction rate security.
As of
February 28, 2019
and
May 31, 2018
, marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2019
|
(in thousands)
|
Amortized
cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Government agency obligations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2018
|
(in thousands)
|
Amortized
cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Government agency obligations
|
$
|
1,350
|
|
|
$
|
—
|
|
|
$
|
(33
|
)
|
|
$
|
1,317
|
|
|
$
|
1,350
|
|
|
$
|
—
|
|
|
$
|
(33
|
)
|
|
$
|
1,317
|
|
14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various legal proceedings, including commercial, intellectual property, product liability, and regulatory matters of a nature considered normal for its business. The Company accrues for amounts related to these matters if it is probable that a liability has been incurred, and an amount can be reasonably estimated. The Company discloses such matters when there is at least a reasonable possibility that a material loss may have been incurred. However, the Company cannot predict the outcome of any litigation or the potential for future litigation.
C.R. Bard, Inc. v. AngioDynamics, Inc.
On January 11, 2012, C.R. Bard, Inc. (“Bard”) filed a suit in the United States District Court of Utah claiming certain of the Company's implantable port products infringe on
three
U.S. patents held by Bard (the "Utah Action"). Bard’s Complaint sought unspecified damages and other relief. The Company filed petitions for reexamination in the US Patent and Trademark Office ("USPTO") seeking to invalidate all
three
asserted patents. The Company's petitions were granted and 40 of Bard's 41 patent claims were rejected and, following further proceedings, the Patent Office issued a Final Rejection of all
40
claims subject to reexamination. Thereafter, Bard filed appeals to the USPTO Board of Appeals and Interferences for all
three
reexaminations, which were decided as follows: In one (issued on March 11, 2016 for US Patent No. 7,785,302), the rejections of
six
of the
ten
claims under reexamination were affirmed, but were reversed on
four
of the ten claims. In the second (issued on March 24, 2016 for U.S. Patent No. 7,959,615), the rejections of
eight
of the
ten
claims under reexamination were affirmed but the rejections of the other
two
of the ten claims were reversed. In the third (issued on March 29 for U.S. Patent No. 7,947.022) the rejections of all
twenty
claims under reexamination were affirmed. Thereafter, Bard sought Rehearing in all
three
appeals and the Company sought Rehearing in the ‘302 and ‘615 appeals. The PTO denied all three Rehearing Requests, but modified its characterization of one prior art reference for the ‘302 and ‘022 decisions. Bard filed Appeals to the Federal Circuit Court of Appeals in all three reexams and the Company filed Cross-Appeals for the ‘302 and the ‘615 reexams and completed briefing. MedComp also filed an Amicus Brief in support of the Company on November 22, 2017. An oral hearing was held on September 5, 2018 and the court rendered its decision on September 28, 2018. Affirming that claims 1-5 and 10 of the ‘615 patent were invalid and that claims 6-7 of the 615 patent and 1-4 of the 302 patent were valid in light of the asserted prior art references. The Federal Circuit reversed the PTAB’s claim construction ruling and remanded for consideration of obviousness for the remaining claims under the new claim construction ruling and further findings with respect to whether one of the asserted references qualified as a printed publication. On January 28, 2019, The USPTO reversed the rejections of the ‘302 claims 1-10, ‘022 claims 1-20 and ‘617 8-9. Meanwhile, the Utah Action remains stayed. On July 12, 2017, Bard assigned the asserted patents to Bard Peripheral Vascular, Inc. (“BPV”) which was added as Co-Appellant before the Federal Circuit and as a co-Plaintiff in the Utah action. The Company believes these claims are without merit and intends to defend them vigorously. The Company has not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.
On March 10, 2015, C.R. Bard, Inc. ("Bard") and Bard Peripheral Vascular, Inc. (“BPV”) filed suit in the United States District Court for the District of Delaware (the “Delaware Action") claiming certain of the Company's implantable port products infringe on
three
other U.S. patents held by Bard, which are different from those asserted in the Utah action. Bard's complaint seeks unspecified damages and other relief. On June 1, 2015, the Company filed
two
motions in response to Bard’s Complaint - one sought transfer to the District of Utah where the Utah Action is currently pending, and the other sought dismissal of the entire complaint on grounds that none of the claims in the asserted patents is directed to patent eligible subject matter under Section 101 of the Patent Statute and in light of recent authority from the U. S. Supreme Court. On January 12, 2016, the Court issued a decision denying both motions. A Markman hearing was held on March 10, 2017 and the Court issued its Claim Construction Order on May 19, 2017. On May 19, 2017, Bard served its Final Infringement Contentions and on June 2, 2017, the Company served its Final Invalidity Contentions. On October 20, 2017, the scheduling order for the case was amended to, among other things, set a trial date commencing July 23, 2018. The parties completed Expert Discovery in January 2018 and completed briefing on their respective case dispositive motions on April 27, 2018. On June 26, 2018, the Court denied all case dispositive motions, ruling that issues of material fact remained in dispute. On July 9, 2018, the Court continued the trial until March 2019. On January 9, 2019 the court held a further claim construction hearing to resolve
two
outstanding claim construction issues prior to trial. A Report and Recommendation was issued on February 11, 2019 and entered by the Court on February 28, 2019. Jury selection was held on Friday March 1, 2019 and trial began on March 4, 2019. On day four of the jury trial, at the close of C.R. Bard’s case (Plaintiff), Judge Bataillon granted judgment as a matter of law under rule 50(a) in favor of AngioDynamics, dismissing Bard’s suit. We await a final order from the Court regarding the Rule 50(a) rulings. We maintain our belief that these claims are without merit. The Company has not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.
AngioDynamics, Inc. v. C.R. Bard, Inc.
On May 30, 2017, the Company commenced an action in the United States District Court for the Northern District of New York entitled AngioDynamics, Inc. v. C.R. Bard, Inc. and Bard Access Systems, Inc. (“Bard”). In this action, the Company alleges that Bard has illegally tied the sales of its tip location systems to the sales of its PICCs. The Company alleges that this practice violates the federal antitrust laws and has had, and continues to have, an anti-competitive effect in the market for PICCs. The Company seeks both monetary damages and injunctive relief. Bard moved to dismiss on September 8, 2017. On August 6, 2018 the court denied Bard’s motion in its entirety.
Governmental Investigations
In June 2014, the Company received a subpoena from the U.S. Department of Justice (the “DOJ”) requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding BTG International, Inc.’s LC Bead® product beginning in 2003. RITA Medical Systems and AngioDynamics, Inc., after its acquisition of RITA, was the exclusive distributor of LC Beads in the United States from 2006 through December 31, 2011. The Company fully cooperated with this investigation.
In April 2015, the Company received a subpoena from the DOJ requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding purported promotion of certain of the Company's VenaCure EVLT products for un-cleared indications. The Company fully cooperated with this investigation.
As of May 31, 2017, the Company accrued
$12.5 million
for these matters and in August 2017 the Company agreed in principle with the government to resolve these matters for approximately
$12.5 million
plus interest. In July 2018, the Company executed the final settlements and paid approximately
$12.7 million
.