BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts.)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,319
|
)
|
$
|
(12,202
|
)
|
$
|
(61,422
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
7,787
|
|
|
11,912
|
|
|
12,080
|
|
Depreciation
|
|
|
9,978
|
|
|
8,037
|
|
|
10,913
|
|
Decrease in deferred rent
|
|
|
(215
|
)
|
|
(198
|
)
|
|
(303
|
)
|
Deferred income tax (benefit) expense
|
|
|
53
|
|
|
(1,033
|
)
|
|
13
|
|
Stock-based compensation
|
|
|
3,303
|
|
|
3,747
|
|
|
4,006
|
|
Amortization of intangibles
|
|
|
2,340
|
|
|
1,341
|
|
|
1,219
|
|
Amortization of investment premium
|
|
|
|
|
|
268
|
|
|
561
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
45,999
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,597
|
)
|
|
(3,635
|
)
|
|
(6,653
|
)
|
Inventory
|
|
|
340
|
|
|
(885
|
)
|
|
(548
|
)
|
Prepaid expenses and other assets
|
|
|
(637
|
)
|
|
691
|
|
|
3,661
|
|
Accounts payable
|
|
|
2,369
|
|
|
552
|
|
|
(3,033
|
)
|
Accrued and other liabilities
|
|
|
(2,143
|
)
|
|
(2,852
|
)
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,259
|
|
|
5,743
|
|
|
5,030
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
(28,155
|
)
|
|
|
|
Purchases of property and equipment
|
|
|
(8,169
|
)
|
|
(5,962
|
)
|
|
(3,954
|
)
|
Purchases of short-term available-for-sale investments
|
|
|
|
|
|
(11,935
|
)
|
|
(49,657
|
)
|
Sale or maturity of short-term available-for-sale investments
|
|
|
|
|
|
39,636
|
|
|
47,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,169
|
)
|
|
(6,416
|
)
|
|
(5,713
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of employee stock options and employee stock purchase plan contributions
|
|
|
847
|
|
|
440
|
|
|
509
|
|
Principal payments on capital lease obligations
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
763
|
|
|
440
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,853
|
|
|
(233
|
)
|
|
(174
|
)
|
Cash and cash equivalentsbeginning of period
|
|
|
18,298
|
|
|
18,531
|
|
|
18,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsend of period
|
|
$
|
22,151
|
|
$
|
18,298
|
|
$
|
18,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
132
|
|
$
|
295
|
|
$
|
|
|
Cash paid for taxes
|
|
$
|
112
|
|
$
|
135
|
|
$
|
171
|
|
Capital lease obligations
|
|
$
|
737
|
|
$
|
0
|
|
$
|
0
|
|
See accompanying notes.
47
Table of Contents
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
(In thousands, except share amounts.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
Common Stock
|
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
|
|
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Shareholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Balance December 31, 2010
|
|
|
24,251,170
|
|
|
24
|
|
$
|
247,747
|
|
$
|
8
|
|
$
|
(112,851
|
)
|
$
|
134,928
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
170,607
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
|
515
|
|
Stock based compensation
|
|
|
112,824
|
|
|
1
|
|
|
3,999
|
|
|
|
|
|
|
|
|
4,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,422
|
)
|
|
(61,422
|
)
|
Changes in unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2011
|
|
|
24,534,601
|
|
|
25
|
|
|
252,261
|
|
|
(16
|
)
|
|
(174,273
|
)
|
|
77,997
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
194,878
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
440
|
|
Stock based compensation
|
|
|
459,861
|
|
|
|
|
|
3,747
|
|
|
|
|
|
|
|
|
3,747
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,202
|
)
|
|
(12,202
|
)
|
Changes in unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
25,189,340
|
|
|
25
|
|
|
256,448
|
|
|
|
|
|
(186,475
|
)
|
|
69,998
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
348,681
|
|
|
1
|
|
|
846
|
|
|
|
|
|
|
|
|
847
|
|
Stock based compensation
|
|
|
274,733
|
|
|
|
|
|
3,303
|
|
|
|
|
|
|
|
|
3,303
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,319
|
)
|
|
(7,319
|
)
|
Balance December 31, 2013
|
|
|
25,812,754
|
|
|
26
|
|
$
|
260,597
|
|
$
|
|
|
$
|
(193,794
|
)
|
$
|
66,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2013, 2012 and 2011
(In thousands,
except share and per share amounts.)
1. Organization and Description of Business
BioTelemetry, Inc. (the "Company," "BioTelemetry," "we" or "us"), a Delaware corporation, was formerly known as CardioNet, Inc. CardioNet, Inc. was reorganized under
a holding company structure with the new name BioTelemetry, Inc. effective July 31, 2013. On August 1, 2013, the Company continued trading on NASDAQ under the symbol "BEAT".
BioTelemetry, Inc.
provides cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory services. Since the Company became
focused on cardiac monitoring in 1999, the Company has developed a proprietary integrated patient management platform that incorporates a wireless data transmission network, Food and Drug
Administration ("FDA") cleared algorithms and medical devices, and 24-hour digital monitoring service centers.
The
Company operates under three segments: patient services, product and research services. The patient services segment is focused on the diagnosis and monitoring of cardiac
arrhythmias, or heart rhythm disorders. The Company provides cardiologists and electrophysiologists who prefer to use a single source of cardiac monitoring services with a full spectrum of solutions,
ranging from the differentiated Mobile Cardiac Outpatient Telemetry
TM
("MCOT") service to wEvent, event, Holter, Pacemaker and International normalized ratio ("INR")
monitoring. INR monitoring is a measurement of blood coagulation in the circulatory system and is prescribed for patients on long term anticoagulation therapy. The product business segment focuses on
the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. The research services segment is engaged in central core laboratory services
providing cardiac monitoring, scientific consulting and data management services for drug and medical device trials.
In
August 2012, the Company completed the acquisition of Cardiocore Lab, Inc. ("Cardiocore"). Cardiocore is a central core laboratory that provides cardiac monitoring services for
drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical companies and contract research organizations. The acquisition gave the Company access to industry expertise, an
established operating structure and a substantial footprint in the core lab industry. Cardiocore is included in the Company's research services segment.
In
February 2012, the Company completed the acquisition of ECG Scanning & Medical Services, Inc. ("ECG Scanning"). Similar to the Company's core patient services business,
ECG Scanning was engaged in providing cardiac monitoring services to general practitioners, internal medicine specialists, cardiologists and hospital cardiac care departments. The acquisition gave the
Company access to established customer relationships and provided cost synergies. ECG Scanning is included in the Company's patient services segment.
On
December 21, 2010, the Company completed the acquisition of Biotel Inc. ("Biotel"), and its wholly owned subsidiaries, Braemar, Inc. ("Braemar") and Agility
Centralized Research Services, Inc. ("Agility"). Braemar develops, manufactures, and markets cardiac monitoring devices to healthcare companies, clinics and hospitals. Agility is a central core
laboratory that provides cardiac monitoring service to medical device companies who are seeking FDA approval of their products. This acquisition provided access to an established customer base and
diversified the Company's revenue by adding manufacturing and core laboratory services to its portfolio. Braemar is included in the Company's
49
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
1. Organization and Description of Business (Continued)
product
segment, whereas Agility was repositioned during 2012 into the Company's research services segment.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that
management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, other current assets, accounts
payable, deferred revenue and other current liabilities. The carrying value of these financial instruments approximates their fair value because of their short-term nature. The fair value of financial
instruments is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.
Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash
equivalents are defined as liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have insignificant
interest rate risk.
Accounts receivable related to the patient services segment are recorded at the time revenue is recognized, net of contractual
allowances, and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been
provided and billed. The Company records bad debt expense based on the aging of receivables using historical company specific data. The percentages and amounts used to record bad debt expense and the
allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections, and the aging of specific receivables. Because of continuing changes
in the health care industry and third party reimbursement, it is possible
50
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
that
the Company's estimates of collectability could change, which could have a material impact on the Company's operations and cash flows.
Accounts
receivable related to the product and research services segments are recorded at the time revenue is recognized, or when the services or products are billable, net of discounts.
The Company estimates allowance for doubtful accounts on a specific account basis, and considers several factors in its analysis including customer specific information and aging of the account.
The
Company writes off receivables when the likelihood for collection is remote and when the Company believes collection efforts have been fully exhausted and it does not intend to
devote additional resources in attempting to collect. The Company performs write-offs on a monthly basis. In the patient services segment, the Company wrote off $7,919 and $14,184 of receivables for
the years ended December 31, 2013 and 2012, respectively. The impact was a reduction of gross receivables and a reduction in the allowance for doubtful accounts. Additionally, the Company
recorded bad debt expense of $7,787, $11,912 and $12,080 for the years ended December 31, 2013, 2012 and 2011, respectively. Based on collection experience, unfavorable adjustments of $1,480
and $6,343 were made to accounts receivable in 2013 and 2012, respectively, related to prior years accounts receivable. There were no write-offs in the product and research services segments.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents with high quality financial institutions to mitigate this risk. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company records an allowance for doubtful accounts in accordance with the procedures described above. Past-due amounts are written off against
the allowance for doubtful accounts when collections are believed to be unlikely and all collection efforts have ceased.
At
December 31, 2013, 2012 and 2011, one customer, Medicare, accounted for 18%, 20% and 19%, respectively, of the Company's net accounts receivable.
Inventory is valued at the lower of cost (using first-in, first-out cost method) or market (net realizable value or replacement cost).
Company management periodically reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded to reduce inventory to the lower of cost or market.
Property and equipment is recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable
assets, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are
charged to expense as incurred.
51
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The Company periodically evaluates the recoverability of the carrying value of its long-lived assets based on the criteria established
in Accounting Standards Codification (ASC) 360,
Property, Plant & Equipment
. The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating
performance of the business and the undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the expected future cash flows is less
than the assets' carrying value.
Goodwill is the excess of purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed
in a business combination. In accordance with
ASC 350, IntangiblesGoodwill and Other
, goodwill is reviewed for impairment annually, or when
events arise that could indicate that impairment exists. The provisions of ASC 350 require that the Company perform a two-step impairment test. In the first step, the Company compares the fair value
of its reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the
second step of the impairment test is performed in order to determine the implied fair value of the reporting units' goodwill. If the carrying value of the reporting units' goodwill exceeds its
implied fair value, an impairment loss equal to the difference is recorded.
For
the purpose of performing its goodwill impairment analysis in 2013, the Company considers its business to be comprised of three reporting units, patient services, product and
research services. The Company calculates the fair value of the reporting units utilizing the income and market approaches. The income approach is based on a discounted cash flow methodology that
includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant
judgment. The market approach utilizes the Company's market data. There are inherent uncertainties related to these factors and the judgment applied in the analysis. The Company believes that the
combination of an income and a market approach provides a reasonable basis to estimate the fair value of its reporting units.
The Company recognizes approximately 78% of its total revenue from patient monitoring services in its patient services segment, derived
from its MCOT, wEvent, event, Holter, Pacemaker and INR services. The Company receives a significant portion of its revenue from third party commercial payors and governmental entities.
It also receives reimbursement directly from patients through co-pay, deductibles and self-pay arrangements.
Revenue
from the Medicare program is based on reimbursement rates set by CMS. Revenue from contracted commercial payors is recorded at the negotiated contractual rate. Revenue from
non-contracted commercial payors is recorded at net realizable value based on historical payment
52
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
patterns.
Adjustments to the estimated net realizable value, based on final settlement with the third party payors, are recorded upon settlement. If the Company does not have consistent historical
information regarding collectability from a given payor, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until service is performed. For the years ended
December 31, 2013, 2012 and 2011, revenue from Medicare as a percentage of total Company revenue was 35%, 37% and 33%, respectively.
Revenue
received from the sale of products, product repair and supplies is recognized when shipped, or as service is completed. Unearned amounts are appropriately deferred until service
is performed.
Research
services revenue includes revenue for research and core laboratory services. The Company's research services revenues are provided on a fee for service basis, and revenue is
recognized as the related services are performed. We also provide consulting services on a time and materials basis and recognize revenues as we perform the services. Our site support revenue,
consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us
a portion of our fee for these services upon contract execution as an upfront deposit, some of which is typically nonrefundable upon contract termination. Unearned revenues are deferred, and then
recognized as the services are performed.
For
arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management's best
estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.
We
record reimbursements received for out-of-pocket expenses, including freight, incurred as revenue in the accompanying consolidated statements of operations. Revenue generally is
recognized net of any taxes collected from customers and subsequently remitted to government authorities.
Advertising costs are charged to expense as incurred. For the years ended December 31, 2013, 2012 and 2011, the Company incurred
advertising costs of $223, $174 and $218, respectively.
Research and development costs are charged to expense as incurred.
The Company computes net loss per share in accordance with ASC 260,
Earnings Per Share
.
Basic net loss per share is computed by dividing net loss per share available to common shareholders by the weighted average number of common shares outstanding for the period, and excludes the
effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the treasury stock or if converted methods, as applicable.
53
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The
following summarizes the potential outstanding common stock of the Company as of the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
December 31,
2011
|
|
Employee stock purchase plan estimated share options outstanding
|
|
|
81,848
|
|
|
50,903
|
|
|
51,544
|
|
Common stock options and restricted stock units ("RSUs") outstanding
|
|
|
3,993,590
|
|
|
3,669,103
|
|
|
2,468,991
|
|
Common stock options available for grant
|
|
|
2,404,498
|
|
|
1,853,786
|
|
|
2,369,802
|
|
Common stock
|
|
|
25,812,754
|
|
|
25,189,340
|
|
|
24,534,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
32,292,690
|
|
|
30,763,132
|
|
|
29,424,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share is computed by dividing net loss by the weighted average number of fully vested common shares outstanding during the period. Diluted net loss per share is
computed by giving effect to all potential dilutive common shares, including stock options, and RSUs.
The
following table presents the calculation of historical basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,319
|
)
|
$
|
(12,202
|
)
|
$
|
(61,422
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted net loss per share
|
|
|
25,543,646
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.29
|
)
|
$
|
(0.49
|
)
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 718,
CompensationStock Compensation
, addresses the accounting for
share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that an entity measures the cost of equity-based service awards based
on the grant-date fair value of the award and recognizes the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting
period). ASC 718 requires that an entity measures the cost of liability-based service awards based on current fair value that is re-measured subsequently at each reporting date through the settlement
date. The Company accounts for equity awards issued to non-employees in accordance with ASC 505-50,
Equity-Based Payments to Non-Employees
.
54
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The Company accounts for income taxes under the liability method, as described in ASC 740,
Income
Taxes
. Deferred income taxes are recognized for the tax consequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities.
A valuation allowance for net deferred tax assets is provided unless realizability is judged by the Company to be more likely than not.
ASC 280,
Segment Reporting
, establishes standards for reporting information regarding
operating segments in annual financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the
chief operating decision-maker, or decision-making group in making decisions on how to allocate resources and assess performance.
Effective
in the third quarter 2012, with the acquisition of Cardiocore, the Company changed its reportable segments from two segments: patient services and product, to three segments:
patient services, product and research services. The patient services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through
its core Mobile Cardiac Outpatient Telemetry
TM
(MCOT
TM
), wEvent, event, Holter and Pacemaker services, as well as INR
services in a healthcare setting. The Product business segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. The
Research services segment includes the Company's operations that engage in central core laboratory services in a research environment, which includes certain equipment rental and product sales. In
addition, the Company realigned the Product segment to exclude central core laboratory research operations previously reported in this segment and repositioned these operations into the Research
services segment. Disclosures for the twelve months ended December 31, 2012 have been adjusted to reflect the change in reportable segments.
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02,
IntangiblesGoodwill and Other (Topic
350): Testing Indefinite-Lived Intangible Assets for Impairment
. The new guidance allows an entity the
option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is
impaired. If the qualitative assessment leads to the determination that is more likely than not that the indefinite-lived intangible asset is impaired, then the entity is required to determine the
fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The ASU is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012. The amendment did not have a material impact on the Company's results of operations, cash flows, or financial
position.
55
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
In
February 2013, FASB issued ASU 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income.
The new guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The ASU is
effective prospectively for reporting periods beginning after December 15, 2012. The amendment did not have a material impact on the Company's results of operations, cash flows, or financial
position.
In
July 2013, the FASB issued ASU 2013-11,
Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists
. The new guidance provides specific financial statement presentation requirements of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit in those circumstances should be presented as a reduction to
the deferred tax asset. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The
Company does not expect the amendment to have a material impact on its results of operations, cash flows, or financial position.
3. Business Combinations
On February 10, 2012, the Company entered into and closed on a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") with ECG Scanning and Medical
Services, Inc., an Ohio corporation ("ECG Scanning"). Upon the closing of the transaction, the Company acquired all of the issued and outstanding capital stock, and ECG Scanning became a
wholly-owned subsidiary of the Company. ECG Scanning was a provider of cardiac monitoring services in the United States. The Company paid an aggregate cash purchase price of $5,800 at closing and up
to an additional $600 in cash, with an estimated fair value of $570, upon the achievement of certain performance targets approximately one year from the date of purchase. At December 31, 2012
the estimated fair value of the earn out was $0. The reduction of the liability was recognized in the Statement of Operations and Comprehensive Income (Loss) in the Integration, restructuring, and
other line. The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition. The acquisition gave the Company access to
established customer relationships, and entry into additional regions and geographic locations.
56
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
3. Business Combinations (Continued)
The
purchase price allocation of the ECG Scanning acquisition purchase consideration of $6,370 was completed in the second quarter of 2012. The following table summarizes the purchase
price allocation:
|
|
|
|
|
Fair value of assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32
|
|
Accounts receivable
|
|
|
1,686
|
|
Prepaid expenses and other current assets
|
|
|
141
|
|
Property and equipment
|
|
|
2,655
|
|
Goodwill
|
|
|
1,577
|
|
Intangible assets
|
|
|
1,540
|
|
Other assets
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
7,695
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
508
|
|
Accrued expenses
|
|
|
283
|
|
Other liabilities
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,325
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
August 29, 2012, the Company entered into a definitive merger agreement with Cardicore Lab, Inc. ("Cardiocore"), a Delaware corporation. Upon the closing of the
transaction, Cardiocore became a wholly-owned subsidiary of the Company. The Company paid an aggregate purchase price of $23,500 in cash at closing. The acquisition has been included within the
consolidated results of operations and financial condition from the date of the acquisition.
Cardiocore
is engaged in central core laboratory services that provide cardiac monitoring for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical
companies and contract research organizations. The acquisition gave the Company access to industry expertise, an established operating structure and a substantial footprint in the core laboratory
industry.
57
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
3. Business Combinations (Continued)
The
purchase price allocation of the Cardiocore acquisition purchase consideration of $23,500 was completed in the fourth quarter of 2012. The following table summarizes the purchase
price allocation:
|
|
|
|
|
Fair value of assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,113
|
|
Accounts receivable
|
|
|
4,290
|
|
Prepaid expenses and other current assets
|
|
|
386
|
|
Property and equipment
|
|
|
4,230
|
|
Goodwill
|
|
|
11,506
|
|
Intangible assets
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
28,445
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
1,195
|
|
Accrued expenses
|
|
|
1,215
|
|
Deferred tax liabilities
|
|
|
935
|
|
Deferred revenue
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
4,945
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
23,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the periods presented instead of
August 29, 2012. The pro forma information is based on historical results adjusted for the effect of purchase accounting and is not necessarily indicative of the results of operations of the
combined entity had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future results.
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Revenue
|
|
$
|
124,698
|
|
$
|
134,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(10,936
|
)
|
$
|
(62,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per common share:
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.47
|
)
|
$
|
(2.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
Basic
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
4. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Raw materials and supplies
|
|
$
|
2,404
|
|
$
|
2,782
|
|
Finished goods
|
|
|
150
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
2,554
|
|
$
|
2,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories,
which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by
use of the first-in, first-out method.
5. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Estimated
Useful Life
(Years)
|
|
|
|
2013
|
|
2012
|
|
Cardiac monitoring devices, device parts and components
|
|
3 - 5
|
|
$
|
37,273
|
|
$
|
52,943
|
|
Computers and purchased software
|
|
3 - 5
|
|
|
13,302
|
|
|
12,088
|
|
Equipment, tools and molds
|
|
3
|
|
|
5,384
|
|
|
6,591
|
|
Furniture and fixtures
|
|
3
|
|
|
2,863
|
|
|
3,476
|
|
Leasehold improvements
|
|
Life of lease
|
|
|
2,665
|
|
|
5,828
|
|
Capital leases
|
|
5
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
|
|
|
62,224
|
|
|
80,926
|
|
Less accumulated depreciation
|
|
|
|
|
(43,445
|
)
|
|
(61,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
$
|
18,779
|
|
$
|
19,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense associated with property and equipment was $9,978, $8,037 and $10,913, for the years ended December 31, 2013, 2012 and 2011, respectively.
6. Goodwill and Intangible Assets
Goodwill was recognized at the time of the Cardiocore, ECG, Biotel and PDSHeart acquisitions. The carrying amount of goodwill as of December 31, 2013 and 2012 was $16,469 and
$16,446, respectively.
59
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
6. Goodwill and Intangible Assets (Continued)
The changes in the carrying amounts of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segment
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Total
|
|
Balance at December 31, 2012
|
|
$
|
1,577
|
|
$
|
11,712
|
|
$
|
3,157
|
|
$
|
16,446
|
|
Goodwill acquired during the year
|
|
|
|
|
|
23
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
1,577
|
|
$
|
11,735
|
|
$
|
3,157
|
|
$
|
16,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
gross carrying amounts and accumulated amortization of the Company's intangible assets as of December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Estimated
Useful Life
(Years)
|
|
|
|
2013
|
|
2012
|
|
Customer relationships
|
|
6 - 10
|
|
$
|
2,100
|
|
$
|
3,651
|
|
Proprietary technology
|
|
5
|
|
|
4,000
|
|
|
4,000
|
|
Signed backlog
|
|
1 - 4
|
|
|
2,800
|
|
|
2,800
|
|
Unsigned backlog
|
|
4
|
|
|
600
|
|
|
600
|
|
Covenants not to compete
|
|
5
|
|
|
360
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
|
|
|
|
9,860
|
|
|
11,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships accumulated amortization
|
|
|
|
|
(722
|
)
|
|
(1,894
|
)
|
Proprietary technology accumulated amortization
|
|
|
|
|
(1,902
|
)
|
|
(676
|
)
|
Signed backlog accumulated amortization
|
|
|
|
|
(1,400
|
)
|
|
(875
|
)
|
Unsigned backlog accumulated amortization
|
|
|
|
|
(200
|
)
|
|
(50
|
)
|
Covenants not to compete accumulated amortization
|
|
|
|
|
(124
|
)
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
|
|
|
(4,348
|
)
|
|
(3,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived trade name
|
|
|
|
|
1,800
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
|
$
|
7,312
|
|
$
|
9,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
estimated amortization expense for the next five years is summarized as follows at December 31, 2013:
|
|
|
|
|
2014
|
|
$
|
2.294
|
|
2015
|
|
|
1,938
|
|
2016
|
|
|
842
|
|
2017
|
|
|
138
|
|
2018
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
6. Goodwill and Intangible Assets (Continued)
Amortization
expense for the years ended December 31, 2013, 2012 and 2011 was $2,340, $1,341 and $1,219, respectively.
At
December 31, 2013 and 2012, the Company performed its required annual impairment test of goodwill. Based on this impairment test, the Company determined that none of the
reporting unit's goodwill was impaired.
At
December 31, 2011, the Company performed its required annual impairment test of goodwill. Based on this impairment test, the Company determined that its Product reporting
unit's goodwill was not impaired. However, as a result of the impairment test, the Company determined that impairment may exist in the patient services reporting unit. Therefore, the Company performed
Step 2 of the goodwill impairment analysis on its patient services reporting unit.
The
Step 2 analysis was performed by allocating the fair value of the patient services reporting unit to the identifiable assets, including unrecorded intangible assets and liabilities.
This allocation is performed as if the reporting unit had been acquired in a business combination, and assumes the purchase price was equivalent to the fair value determined in Step 1 of the goodwill
impairment test. The residual fair value of the reporting unit after allocation is the implied fair value of goodwill. This value is then compared to the carrying value of the reporting unit's
goodwill. If the implied fair value of goodwill is less than the carrying value, impairment exists and a charge is recorded in the amount of the difference. As a result of the Company's analysis, an
impairment charge of $45,999 was recorded for the year ended December 31, 2011 related to the patient services reporting unit.
7. Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Accrued compensation
|
|
$
|
4,932
|
|
$
|
6,382
|
|
Accrued professional fees
|
|
|
1,922
|
|
|
544
|
|
Accrued purchases
|
|
|
311
|
|
|
197
|
|
Accrued restructuring costs
|
|
|
96
|
|
|
914
|
|
Other
|
|
|
929
|
|
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,190
|
|
$
|
9,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
8. Integration, Restructuring and Other Charges
2013 Integration, Restructuring and Other Charges
For the year ended December 31, 2013, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
Legal fees
|
|
$
|
5,516
|
|
Severance and employee related costs
|
|
|
1,410
|
|
Expenses related to facility closure
|
|
|
564
|
|
Professional fees
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company accounts for expenses associated with exit or disposal activities in accordance with ASC 420,
Exit or Disposal Cost
Obligations,
and records the expenses in "Integration, restructuring and other
charges" in its statement of operations, and records the related accrual in the "Accrued expenses" line of its balance sheet.
In
2013, the Company incurred other charges of $5,516 relating primarily to legal fees for patent litigation. In addition, the Company incurred $1,410 of severance and employee related
costs due to restructuring and integration related activities, $564 of asset impairment charges related to the closure of a small monitoring center located in Michigan and $492 of professional fees
related to corporate restructuring activities.
2012 Integration, Restructuring and Other Charges
For the year ended December 31, 2012, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
Legal fees
|
|
$
|
1,780
|
|
Severance and employee related costs
|
|
|
1,490
|
|
Professional fees
|
|
|
778
|
|
Other charges
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company accounts for expenses associated with exit or disposal activities in accordance with ASC 420,
Exit or Disposal Cost
Obligations,
and records the expenses in "Integration, restructuring and other charges" in its statement of operations, and records the related accrual in the "Accrued
expenses" line of its balance sheet.
In
2012, integration, restructuring and other charges included legal fees of $1,780 related to litigation and transaction due diligence, $778 related to professional services associated
with transaction due diligence, $1,490 related to severance and other employee related costs and $188 related to other restructuring charges.
62
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
8. Integration, Restructuring and Other Charges (Continued)
2011 Integration, Restructuring and Other Charges
For the year ended December 31, 2011, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
Legal fees
|
|
$
|
2,835
|
|
Biotel integration
|
|
|
1,023
|
|
Professional fees
|
|
|
639
|
|
Other charges
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2011, integration, restructuring and other charges included legal fees of $2,835 related to litigation, $639 related to professional services associated with transaction due diligence
and $162 related to severance and other employee related costs.
Restructuring
and integration costs of $1,023 were related to severances and other employee related costs associated with the acquisition of Biotel. The restructuring activities related
to Biotel were substantially complete as of December 31, 2011.
9. Shareholders' Equity
As of December 31, 2013 and 2012, the Company was authorized to issue 200,000,000 shares of common stock. As of
December 31, 2013 and 2012, the Company had 25,812,754 and 25,189,340 shares outstanding, respectively.
The Company maintains an unregistered blank check preferred stock class. As of December 31, 2013 and 2012, there are no shares
authorized and outstanding.
The Company's 2008 Equity Incentive Plan (the 2008 Option Plan) became effective on March 18, 2008. The Plan permits the
Company's Board of Directors to grant incentive stock options to employees of the Company and non-qualified stock options, restricted stock, performance stock and other stock-based incentive awards to
officers, directors, employees and consultants of the Company. On that date, the Company began granting options to purchase shares of common stock to employees, executives, directors and consultants.
Under the terms of the 2008 Option Plan, all available shares in the 2003 Option Plan's share reserve automatically roll into the 2008 Option Plan. Any cancellations or forfeitures of granted options
under the 2003 Option Plan also automatically roll into the 2008 Option Plan. Beginning on January 1, 2009, and each year thereafter, the number of options available to be granted under the
plan will increase by the lesser of 4% of the total number of common shares outstanding or 1,500,000 shares.
63
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
9. Shareholders' Equity (Continued)
Options granted under the 2008 Option Plan have exercise prices not less than the fair market value at the date of grant and have an expiration date of no greater than ten years from the
date of grant. There is no vesting schedule provided in the 2008 Option Plan, and vesting is determined by the Board of Directors on the date of grant.
As of October 23, 2008, the Company no longer granted options to purchase shares of common stock to non-employee directors under
the Company's 2008 Non-employee Directors' Stock Option Plan (the 2008 Directors' Plan). The Company's 2008 Directors' Plan became effective March 18, 2008. Beginning on that date, all
directors elected for the first time to the Board of Directors receive a fixed number of options. On the date of the annual meeting, and when directors are elected to a committee or a chair position
of a committee, they will also receive a grant equal to a fixed number of options per the Directors' Plan. Options granted under the Directors' Plan have exercise prices not less than the fair market
value at the date of grant, and have an expiration date of no greater than ten years from the date of grant. Initial and committee chair grants vest 33% on the first anniversary date of grant, and the
balance vests ratably over 24 months. Annual grants vest ratably over 12 months from the date of grant.
As of March 18, 2008, the Company no longer granted options to purchase shares of common stock to employees, executives,
directors and consultants under the Company's 2003
Equity Incentive Plan (the 2003 Option Plan). Options granted under the 2003 Option Plan have exercise prices not less than the fair market value at date of grant for incentive stock options and not
less than 85% of the fair market value at the date of grant for non-statutory options. The options generally expire ten years from the date of grant and generally vest 25% twelve months from the date
of grant, and ratably over the next 36 months thereafter.
The
2003 Option Plan allows for employees to early exercise options on the first anniversary date of employment, regardless of the vested status of granted options. If an employee
terminates prior to fully vesting in options that have been early exercised, the Company repurchases the common stock associated with unvested options at the original exercise price.
64
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
9. Shareholders' Equity (Continued)
Option
and RSU activity under all equity incentive plans is summarized as follows for the years ended December 31, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/RSU's Outstanding
|
|
|
|
Shares
Available
for Grant
|
|
Number
of Shares
|
|
Weighted
Average
Exercise Price
|
|
BalanceDecember 31, 2010
|
|
|
1,649,723
|
|
|
2,102,376
|
|
$
|
12.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,207,210
|
|
|
|
|
|
|
|
Granted
|
|
|
(724,333
|
)
|
|
724,333
|
|
$
|
4.67
|
|
Cancelled/forfeited
|
|
|
237,202
|
|
|
(237,202
|
)
|
$
|
15.10
|
|
Exercised/vesting
|
|
|
|
|
|
(120,516
|
)
|
$
|
7.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2011
|
|
|
2,369,802
|
|
|
2,468,991
|
|
$
|
9.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,216,611
|
|
|
|
|
|
|
|
Granted
|
|
|
(2,128,939
|
)
|
|
2,128,939
|
|
$
|
2.73
|
|
Cancelled/forfeited
|
|
|
396,312
|
|
|
(396,312
|
)
|
$
|
9.98
|
|
Exercised/vesting
|
|
|
|
|
|
(532,515
|
)
|
$
|
7.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2012
|
|
|
1,853,786
|
|
|
3,669,103
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,260,768
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,186,639
|
)
|
|
1,186,639
|
|
$
|
3.35
|
|
Cancelled/forfeited
|
|
|
476,583
|
|
|
(476,583
|
)
|
$
|
5.41
|
|
Exercised/vesting
|
|
|
|
|
|
(385,569
|
)
|
$
|
4.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2013
|
|
|
2,404,498
|
|
|
3,993,590
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of total outstanding stock options as of December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise
Price
|
|
Number
Outstanding
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
Weighted-
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
Weighted-
Average
Exercise Price
|
|
$0.70 - $7.50
|
|
|
2,715,216
|
|
|
7.81
|
|
$
|
3.82
|
|
|
1,279,892
|
|
|
7.24
|
|
$
|
4.52
|
|
$7.51 - $15.00
|
|
|
90,796
|
|
|
8.17
|
|
$
|
9.50
|
|
|
34,546
|
|
|
5.59
|
|
$
|
9.23
|
|
$15.01 - $22.50
|
|
|
249,522
|
|
|
5.28
|
|
$
|
18.40
|
|
|
249,522
|
|
|
5.28
|
|
$
|
18.40
|
|
$22.51 - $31.18
|
|
|
80,400
|
|
|
4.62
|
|
$
|
30.17
|
|
|
80,400
|
|
|
4.62
|
|
$
|
30.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.70 - $31.18
|
|
|
3,135,934
|
|
|
7.54
|
|
$
|
5.82
|
|
|
1,644,360
|
|
|
6.78
|
|
$
|
7.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
9. Shareholders' Equity (Continued)
In
addition, a summary of total outstanding RSU's as of December 31, 2013 is as follows:
|
|
|
|
|
Range of Grant Price
|
|
RSU's
Outstanding
|
|
$2.16 - $6.75
|
|
|
844,943
|
|
$6.76 - $9.75
|
|
|
12,713
|
|
|
|
|
|
|
|
|
|
|
$2.16 - $9.75
|
|
|
857,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes certain additional information with respect to our options:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2013
|
|
2012
|
|
2011
|
|
Aggregate intrinsic value of options outstanding at year-end
|
|
$
|
11,183
|
|
$
|
46
|
|
$
|
17
|
|
Aggregate intrinsic value of options exercisable at year-end
|
|
|
4,382
|
|
|
13
|
|
|
17
|
|
Aggregate intrinsic value of options exercised during the year
|
|
|
422
|
|
|
2
|
|
|
7
|
|
As
of December 31, 2013, 2012 and 2011, the Company has reserved shares of common stock for issuance as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Exercise of options available and grants of awards under equity plans
|
|
|
6,398,088
|
|
|
5,522,889
|
|
|
4,838,793
|
|
The
Company's loss before income taxes for the years ended December 31, 2013, 2012 and 2011 was $3,303, $3,747 and $4,006 lower, respectively, as a result of stock- based
compensation expense incurred. For the year ended December 31, 2013, the impact of stock-based compensation expense was $(0.13) on the basic and diluted earnings per share. The impact of
stock-based compensation expense was $(0.15) and $(0.16) on the basic and diluted earnings per share for the years ended December 31, 2012 and 2011. Stock-based compensation expense was
recorded in general and administrative expenses for the years ended 2013, 2012 and 2011.
Total
cash received from the exercise of stock options for the year ended December 31, 2013, 2012 and 2011 was $467, $4 and $11, respectively. The tax benefit was fully reserved
for through a tax valuation allowance.
The
Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model
requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of the Company's stock and the expected
term of the award. We base our estimates of expected volatility on the historical volatility of our stock price. The expected term represents the period of time that stock-based awards granted are
expected to be outstanding. Other assumptions used in the Black-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for periods
pertaining to the contractual life of
66
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
9. Shareholders' Equity (Continued)
each
option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. The Company has never paid, and does not expect to pay, dividends in the foreseeable future.
The
fair value of the Company's stock-based awards was estimated at the date of grant using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Expected volatility
|
|
|
60.3
|
%
|
|
63.4
|
%
|
|
62.0
|
%
|
Expected term (in years)
|
|
|
6.71
|
|
|
6.31
|
|
|
6.25
|
|
Weighted-average risk-free interest rate
|
|
|
1.34
|
%
|
|
1.15
|
%
|
|
2.48
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Weighted-average grant date fair value per share
|
|
$
|
1.90
|
|
$
|
1.58
|
|
$
|
2.82
|
|
Based
on the Company's historical experience of options that cancel before becoming fully vested, the Company has assumed an annualized forfeiture rate of 15% for all options. Under the
true-up provision of ASC 718, the Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture
rate is higher than estimated.
Total
compensation cost of options granted but not yet vested at December 31, 2013, 2012 and 2011 were approximately $2,644, $3,433 and $3,615, respectively. At
December 31, 2013, 2012 and 2011, the weighted average remaining periods over which the above amounts are expected to be recognized were 2.14 years, 2.34 years and
2.62 years, respectively. At December 31, 2013, 2,404,498 shares remained available for future grant under the Plan.
A
summary of the status of the Company's unvested stock options and RSU's as of the respective balance sheet dates, and changes during years, is presented below:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
(per share)
|
|
Unvested shares at December 31, 2012
|
|
|
2,436,702
|
|
$
|
2.62
|
|
Granted
|
|
|
1,186,639
|
|
$
|
2.52
|
|
Vested
|
|
|
(797,528
|
)
|
$
|
3.14
|
|
Cancelled/forfeited
|
|
|
(476,583
|
)
|
$
|
3.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares at December 31, 2013
|
|
|
2,349,230
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 1, 2009, the Company accelerated the vesting of certain employees' unvested options that were deeply
out-of-the-money. The acceleration was done because the Company believed that
67
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
9. Shareholders' Equity (Continued)
there
was no longer a compensation incentive tied to Company performance, given the exercise price of the options that were accelerated. Consistent with ASC 718, the Company will continue to expense
the accelerated options over the remaining service period. The Company does not have a static policy threshold to use for determining whether an option is deeply out-of-the-money. Rather, the Company
believes that the determination should be made in light of current market conditions, probability of stock price recovery within the remaining service period, and historical volatility of the
Company's stock price. For the purposes of this option acceleration, the Company determined that options that were out-of-the-money by 30% or more were deeply out-of-the-money. As a result of the
option acceleration, approximately 309,000 previously unvested shares became fully vested on December 1, 2009. The Company incurred an expense associated with the options that were accelerated
in the amount of $137, $578 and $984 for the years ended December 31, 2013, 2012 and 2011, respectively, which have been recorded in the General and administrative line of the consolidated
statement of operations and comprehensive income (loss). The weighted average exercise price of the accelerated options is $19.87, and the remaining service period has elapsed.
In July 2008, the Company made available an employee stock purchase plan in which substantially all of the Company's full-time
employees became eligible to participate effective March 18, 2008. Under the plan, employees may contribute through payroll deductions up to 15% of their compensation toward the purchase of the
Company's common stock, or $21, whichever is
lower. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the day of purchase. Proceeds received from
the issuance of shares are credited to stockholders' equity in the period that the shares are issued. In 2013, 243,185 shares were purchased in accordance with the Employee Stock Purchase Plan
(ESPP). Net proceeds to the Company from the issuance of shares of common stock under the ESPP for the year ended December 31, 2013 were $487. In January 2013, the number of shares available
for grant was increased by 252,154, per the ESPP plan documents. At December 31, 2013, approximately 517,456 shares remain available for purchase under the ESPP. For the years ended
December 31, 2013, 2012 and 2011, the Company incurred ESPP expenses of $211, $182 and $201, respectively.
10. Income Taxes
The Company has deferred income tax assets totaling $53,584 at December 31, 2013, consisting primarily of federal and state net operating loss and credit carryforwards. Due to
uncertainty regarding the ultimate realization of these net operating loss and credit carryforwards and other deferred income tax assets, we have established a full valuation allowance on our deferred
tax assets and will recognize the benefits only as reassessment indicates the benefits are realizable. The determination of the required valuation allowance against net deferred tax assets was made
without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.
68
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
10. Income Taxes (Continued)
The Company's income tax expense for 2013 of $215 primarily relates to state taxes based on gross receipts or modified gross receipts calculations properly included as income taxes.
The
Company performed an analysis to determine the extent to which it can use its net operating loss carryforwards in future periods, subject to certain limitations imposed by the
Internal Revenue Code. The Company concluded that because of the Company's limited history of reporting a net profit, it cannot predict that the benefits of the net operating loss carryfowards will be
realized in future periods, and therefore the Company continues to provide a full valuation allowance for deferred tax assets. The Company will perform a similar analysis during 2014 to reassess the
estimated future realizability of net operating loss carryforwards.
Deferred
taxes result from temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax
purposes. The significant components of the Company's deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
37,335
|
|
$
|
37,384
|
|
Research & development and AMT credit carryforwards
|
|
|
4,687
|
|
|
4,530
|
|
Stock option grants
|
|
|
6,533
|
|
|
5,329
|
|
Allowance for doubtful accounts
|
|
|
3,101
|
|
|
2,932
|
|
Other, net
|
|
|
1,928
|
|
|
2,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
53,584
|
|
|
52,385
|
|
Less valuation allowance
|
|
|
(50,979
|
)
|
|
(49,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,605
|
|
$
|
3,240
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(345
|
)
|
|
(815
|
)
|
Identified intangible assets
|
|
|
(2,089
|
)
|
|
(2,404
|
)
|
Indefinite lived intangible assets
|
|
|
(730
|
)
|
|
(678
|
)
|
Prepaid insurance
|
|
|
(171
|
)
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,335
|
)
|
|
(3,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
|
(730
|
)
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
10. Income Taxes (Continued)
Reconciliations
between expected income taxes computed at the federal rate of 35% for each of the years ended December 31, 2013, 2012 and 2011, and the provision (benefit) for
income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Income tax benefit at statutory rate
|
|
$
|
(2,486
|
)
|
$
|
(4,587
|
)
|
$
|
(21,412
|
)
|
State income tax, net of federal benefit
|
|
|
716
|
|
|
(211
|
)
|
|
191
|
|
Stock-based compensation
|
|
|
203
|
|
|
397
|
|
|
493
|
|
Nondeductible goodwill impairment
|
|
|
|
|
|
|
|
|
16,100
|
|
Other
|
|
|
182
|
|
|
200
|
|
|
(173
|
)
|
Increase in valuation allowance
|
|
|
1,600
|
|
|
3,296
|
|
|
5,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
215
|
|
$
|
(905
|
)
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2013, the Company had federal net operating loss carryforwards of approximately $96,588, to offset future federal taxable income expiring in various years through
2030. At December 31, 2013, the Company had state net operating loss carryforwards of $54,243, which expire in various years starting in 2014.
The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The
timing and manner in which the Company can utilize its net operating loss carryforward and future income tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding
the change in ownership of corporations. Such limitation may have an impact on the ultimate realization of the Company's carryforwards and future tax deductions. Section 382 of the Internal
Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize net operating losses if it experiences an "ownership change." In general terms, an ownership change may
result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual limitation
may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by the Company at the time of the change that are
recognized in the five-year period after the change. Currently, the Company's loss carryforwards are limited under Section 382.
70
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
10. Income Taxes (Continued)
The
components of the Company's income tax (benefit) provision are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
24
|
|
$
|
|
|
State
|
|
|
138
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision for income taxes
|
|
|
162
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
(996
|
)
|
State
|
|
|
53
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (benefit) for income taxes
|
|
|
53
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
215
|
|
$
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
U.S. Internal Revenue Service concluded its examination of the Company's U.S. federal tax returns for all years through 2010. Because of net operating losses, the Company's U.S.
federal tax returns for those years will remain subject to examination until the losses are utilized.
The
Company does not have a tax reserve recorded for tax contingencies. As of December 31, 2013 and 2012, the Company has not identified any uncertain tax positions and therefore,
it has no tax reserve recorded as of December 31, 2013 and 2012.
11. Commitments and Contingencies
The Company leases its principal administrative and service facilities as well as office equipment under non-cancelable operating
leases expiring at various dates through 2021. The terms of the leases are renewable at the end of the lease term. Payments made under operating leases are charged to operations on a straight-line
basis over the period of the lease. Differences between straight-line expense and cash payments are recognized in the deferred rent line of the balance sheet. Rent expense was $3,622, $2,946 and
$2,713 for the years ended December 31, 2013, 2012 and 2011, respectively.
During
2013, the Company entered into a capital lease expiring June 2017 to finance equipment relating to technology.
71
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
11. Commitments and Contingencies (Continued)
Future
minimum lease payments under non-cancelable operating and capital leases are summarized as follows at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Capital
Leases
|
|
2014
|
|
$
|
2,250
|
|
$
|
205
|
|
2015
|
|
|
2,195
|
|
|
205
|
|
2016
|
|
|
1,881
|
|
|
205
|
|
2017
|
|
|
1,749
|
|
|
103
|
|
2018
|
|
|
1,732
|
|
|
|
|
Thereafter
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,034
|
|
$
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has an agreement with Verizon whereby the Company has no fixed or minimum financial commitment. However, in the event the
Company fails to maintain an agreed upon number of active cardiac monitoring devices on the Verizon network, Verizon has the right to terminate this agreement.
12. Credit Agreement
On August 29, 2012, the Company entered into a Credit and Security Agreement ("Credit Agreement") with MidCap Financial, LLC to provide revolving loan borrowings with a
loan commitment of up to $15,000, and an option by the Company to increase to a maximum loan commitment of $30,000. Interest on borrowings under the Credit Agreement is based on the London Interbank
Offered Rate ("LIBOR") plus a margin of 4.75%. An unused line fee of 0.50% per annum is payable on any unused line balance, determined as the total loan commitment of $15,000 minus the average daily
balance of the sum of the revolving loan borrowings outstanding during the preceding month. Furthermore, if the Company terminates the agreement at any point prior to the loan expiration date, the
Company will incur a loan termination fee of 1.00% of the loan commitment due immediately preceding the termination. The Credit Agreement is secured by the Company's personal property, inventory and
other assets and expires in August 2016. As of December 31, 2013, the Company did not have any outstanding balance on the credit agreement.
13. Employee Benefit Plan
The Company sponsors a 401(k) Retirement Savings Plan (the Plan) for all eligible employees who
meet certain requirements. Participants may contribute, on a pre-tax basis, up to the maximum allowable amount pursuant to Section 401(k) of the Internal Revenue Code. The Company is not
required to contribute to the Plan. In May 2009, the Company adopted an amendment to the Plan that allowed for an employer matching contribution of 100% of employee contributions, up to 3% of the
employees' salary. In January 2012, the Company adopted an amendment to eliminate the employers'
72
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
13. Employee Benefit Plan (Continued)
matching
contribution. For the years ended December 31, 2013, 2012 and 2011, the Company contributed $0, $0 and $1,296, respectively. Employer contributions vest immediately.
14. Segment Information
The Company operates under three segments: patient services, product, and research services. Prior to 2012, the company operated under two segments: patient services and product. The
patient services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through its core Mobile Cardiac Outpatient
Telemetry ("MCOT"), wEvent, event, Holter and Pacemaker services, as well as INR services in a healthcare setting . The product business segment focuses on the development,
manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. The Company's research services focuses on providing cardiac safety monitoring services for drug
and medical treatment trials in a research environment. Intercompany revenue relating to the manufacturing of devices by the product segment for the other segments is included on the intersegment
revenue line.
Expenses
that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income. Any remaining expenses including research and
development costs incurred by the product segment for the benefit of the other segments as well as the elimination
of costs associated with intercompany revenue are included in Corporate and Other. Also included in Corporate and Other are net financing expenses and other, which consist principally of interest
expense and debt and other financing expenses less interest income. The Company does not allocate assets to the individual segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Corporate
and Other
|
|
Consolidated
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
100,386
|
|
$
|
20,329
|
|
$
|
8,786
|
|
$
|
|
|
$
|
129,501
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
6,191
|
|
|
(6,191
|
)
|
|
|
|
Income (loss) before income taxes
|
|
|
27,298
|
|
|
798
|
|
|
5,307
|
|
|
(40,507
|
)
|
|
(7,104
|
)
|
Depreciation and amortization
|
|
|
4,253
|
|
|
4,057
|
|
|
551
|
|
|
3,457
|
|
|
12,318
|
|
Capital expenditures
|
|
|
5,796
|
|
|
2,242
|
|
|
131
|
|
|
|
|
|
8,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Corporate
and Other
|
|
Consolidated
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
93,640
|
|
$
|
8,333
|
|
$
|
9,521
|
|
$
|
|
|
$
|
111,494
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
2,141
|
|
|
(2,141
|
)
|
|
|
|
Income (loss) before income taxes
|
|
|
13,284
|
|
|
1,556
|
|
|
3,770
|
|
|
(31,717
|
)
|
|
(13,107
|
)
|
Depreciation and amortization
|
|
|
5,161
|
|
|
974
|
|
|
428
|
|
|
2,815
|
|
|
9,378
|
|
Capital expenditures
|
|
|
4,199
|
|
|
1,079
|
|
|
684
|
|
|
|
|
|
5,962
|
|
73
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
15. Legal Proceedings
CardioNet v. Mednet Litigation
On May 8, 2012, CardioNet, Inc. filed suit against Mednet Healthcare Technologies, Inc.,
MedTel 24, Inc., RhythmWatch LLC, and AMI Cardiac Monitoring, Inc., in the United States District Court for the Eastern District of Pennsylvania (Civil Action
No. 2:12-CV-2517-JS) for patent infringement related to the making, use, offering for sale, and sale of the Heartrak ECAT device and monitoring services. The suit asserted that the defendants
are infringing CardioNet's U.S. Patent Nos. 7,212,850, 7,907,996, 6,569,095, 7,587,237 and 7,941,207. CardioNet sought an injunction against each defendant, as well as monetary damages. The
defendants asserted counterclaims alleging the patents in suit are invalid and not infringed.
This
litigation concluded on January 31, 2014 when the Court entered a Consent Judgment declaring all five CardioNet patents valid and enforceable, and infringed by the
defendants' making, using, offering to sell, or selling the Heartrak ECAT device and monitoring services. The Consent Judgment also declared that all defendants are permanently enjoined from further
infringement and are required to turn over all existing inventory of the Heartrak ECAT system to CardioNet and Braemar.
Simultaneously
with the entry on of the consent judgment the Company, through its CardioNet subsidiary, entered into a definitive stock purchase agreement, to purchase all of the
outstanding capital stock of Mednet and its affiliated entities for consideration of $5.5 million in cash and 96,649 shares of the Company's common stock. In addition, as a result of the
acquisition, the Company, through CardioNet, assumed outstanding secured debt of the Mednet entities in the aggregate amount of approximately $10 million, including interest.
CardioNet v. ScottCare Litigation
On May 8, 2012, CardioNet, Inc. filed suit against The ScottCare Corporation and Ambucor Health Solutions, Inc. in
the United States District Court for the Eastern District of Pennsylvania (Civil Action No. 2:12-CV-2516-PBT) for patent infringement under the same five CardioNet patents, as mentioned above
in the Mednet litigation, related to the making, use, sale, and offering for sale of the ScottCare TeleSentry Mobile Cardiac Telemetry device and monitoring services. CardioNet is seeking an
injunction against each defendant, as well as monetary damages. The ScottCare Corporation has asserted counterclaims alleging the patents in suit are invalid and not infringed.
On
May 10, 2013, CardioNet, Inc. and Braemar Manufacturing, LLC filed an Amended Complaint identifying Braemar as the new owner of all right, title and interest to
the patents-in-suit with CardioNet as the exclusive licensee of these patents. Fact discovery is scheduled to close on April 17,
2014, with trial scheduled for November 10, 2014. Consistent with the accounting for contingent liabilities, no accrual has been recorded in the financial statements. The Company is vigorously
pursuing its claims and defending against the counterclaims.
CardioNet v. LifeWatch Litigation
On June 12, 2012, CardioNet, Inc. settled the patent infringement action brought on September 25, 2009 by
LifeWatch Services, Inc., and Card Guard Scientific Survival, Ltd. ("Lifewatch"),
74
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
15. Legal Proceedings (Continued)
the
licensee and owner, respectively, of U.S. Patent Nos. 7,542,878 B2 ("the '878 Patent") and 5,730,143 ("the '143 Patent"), collectively ("Licensed Patents") against the Company's wholly
owned subsidiary, Braemar Inc. ("Braemar") and one of its customers, eCardio Diagnostics, LLC ("eCardio"), in Federal District Court for the Northern District of Illinois, File
No. 09-CV-6001. In this matter, Lifewatch alleged that Braemar and eCardio had infringed the Licensed Patents. Pursuant to the terms of the settlement agreement, the Company paid Lifewatch a
lump sum of $250 for a fully paid license, release, and covenant not to sue under the Licensed Patents for Braemar products. The covenant not to sue extends to Braemar's customers, including eCardio.
16. Civil Investigative Demand
On August 25, 2011, the Company received a Civil Investigative Demand ("CID") issued by the U.S. Department of Justice, Western District of Washington. The CID states that it was
issued in the course of an investigation under the federal false claims act and seeks documents for the period January 1, 2007 through the date of the CID. The CID indicates that the
investigation concerns allegations that the Company may have used inappropriate diagnosis codes when submitting claims for payment to Medicare for its real-time, outpatient cardiac monitoring
services. The Company is cooperating with the government's request and is in the process of providing information in response to the CID. The Company is unable to predict what action, if any, might be
taken in the future by the Department of Justice or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on the Company's
business, financial position or results of operations. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter. Consistent with the accounting for contingent
liabilities, no accrual has been recorded in the financial statements.
75
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BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
17. Quarterly Financial Data (Unaudited)
The following tables summarize the unaudited quarterly financial data for the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amount)
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
32,418
|
|
$
|
32,104
|
|
$
|
31,874
|
|
$
|
33,105
|
|
Gross profit
|
|
|
19,545
|
|
|
19,496
|
|
|
19,234
|
|
|
20,795
|
|
Integration, restructuring and other charges
|
|
|
1,202
|
|
|
2,541
|
|
|
3,077
|
|
|
1,162
|
|
Income (loss) from operations
|
|
|
(2,034
|
)
|
|
(2,238
|
)
|
|
(2,835
|
)
|
|
226
|
|
Net income (loss)
|
|
|
(2,087
|
)
|
|
(2,299
|
)
|
|
(2,956
|
)
|
|
23
|
|
Basic and diluted net income (loss) per share
|
|
$
|
(0.08
|
)
|
$
|
(0.09
|
)
|
$
|
(0.12
|
)
|
$
|
0.00
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
27,045
|
|
$
|
27,450
|
|
$
|
27,040
|
|
$
|
29,959
|
|
Gross profit
|
|
|
15,610
|
|
|
16,726
|
|
|
16,398
|
|
|
17,167
|
|
Integration, restructuring and other charges
|
|
|
270
|
|
|
733
|
|
|
741
|
|
|
2,492
|
|
Loss from operations
|
|
|
(3,581
|
)
|
|
(1,668
|
)
|
|
(3,126
|
)
|
|
(4,784
|
)
|
Net loss
|
|
|
(3,534
|
)
|
|
(1,198
|
)
|
|
(3,121
|
)
|
|
(4,349
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.14
|
)
|
$
|
(0.05
|
)
|
$
|
(0.12
|
)
|
$
|
(0.17
|
)
|
18. Subsequent Events
On January 31, 2014, the Company, through its wholly-owned subsidiary CardioNet, acquired Mednet Healthcare Technologies, Inc., Heartcare Corporation of
America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, the "Mednet entities") from Frank Movizzo ("Seller"), pursuant to the terms and
conditions of a Stock Purchase Agreement among CardioNet, the Mednet entities and Mr. Movizzo (the "Purchase Agreement").
The
Purchase Agreement was entered into following the entry of a consent judgment in connection with the Company's patent infringement action originally filed in the U.S. District Court
for the Eastern District of Pennsylvania in May 2012 against the Mednet entities and other companies. The consent judgment declared that the Mednet entities infringed five patents owned by the Company
and its subsidiary, Braemar Manufacturing, LLC, and that all five patents are valid.
Pursuant
to the terms of the Purchase Agreement, CardioNet purchased all of the outstanding capital stock of the Mednet entities from the Seller for consideration of $5.5 million
in cash and 96,649 shares of the Company's common stock. In addition, as a result of the acquisition, the Company, through CardioNet, assumed outstanding secured debt of the Mednet entities in the
aggregate amount of approximately $10 million, including interest.
On
February 21, 2014, the Company came to an agreement with the third party lenders to refinance this debt. The Loans bear interest at an annual rate of 3.25% until
March 1, 2019, and thereafter will bear
interest at an annual rate equal to the greater of (1) 3.25% or (2) the prime rate as published in the "Money Rates" section of The Wall Street Journal (or it successor) or the highest
76
Table of Contents
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2013, 2012 and 2011
(In thousands, except share and per share amounts.)
18. Subsequent Events (Continued)
prime
rate if more than one is published. Beginning April 1, 2014, the principal amount of the Loans will be repaid, on a monthly basis, in installments of $37,500, plus accrued interest, until
April 1, 2019, when the principal amount of the Loans will be repaid, on a monthly basis, in installments of $75,000, plus accrued interest, until paid in full on or before March 1, 2024
(or such earlier date upon an acceleration of the Loans by Lenders upon an event of default or termination by the Borrowers).
77
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