2015 ANNUAL REPORTSolutions to Advance Life Science Financial HighlightsRevenues($ U.S. in thousands)Employees by Country(As of December 31, 2015)2015 Revenues by RegionNon-GAAP Adjusted Diluted EPS($ U.S.)Non-GAAP Adjusted Income from Continuing Operations($ U.S. in thousands)60% United States17% United Kingdom14% Germany9% Rest of the World6% Spain8% United Kingdom2% Canada2% Sweden1% China0% France51% United States30% GermanyHARVARD BIOSCIENCE, INC. • 2015 ANNUAL REPORTJeffrey A. Duchemin was appointed Chief Executive Officer on August 26, 2013. He assumed the additional roles of President on November 1, 2013 and Director on October 29, 2013. Prior to joining Harvard Bioscience, Mr. Duchemin spent 16 years with Becton Dickinson (BD) in progressive sales, marketing and executive leadership positions across BD’s three business segments; BD Medical Systems, BD Diagnostic Systems, and BD Biosciences. Mr. Duchemin earned an M.B.A. from Southern New Hampshire University and a B.S. in accounting from the University of Massachusetts Dartmouth.In this annual report, we have included non-GAAP financial information including adjusted income and adjusted earnings per diluted share from continuing operations. We believe that this non-GAAP financial information provides investors with an enhanced understanding of the underlying operations of the business. This non-GAAP financial information approximates information used by our management to internally evaluate our results. In particular, we believe that the presentation of non-GAAP adjusted income from continuing operations, including a number of adjusted line items, provides investors with a clearer understanding of the full effect of the adjustments that we make to our GAAP income and earnings per diluted share from continuing operations in order to derive our non-GAAP adjusted income and earnings per diluted share from continuing operations. A tabular reconciliation of these non-GAAP adjusted results can be found at Exhibit 1 and 2.Jeff Duchemin111,171108,864108,864105,171108,663FY15FY11FY12FY13FY149,81610,2207,0624,4058,893FY15FY11FY12FY13FY140.330.340.220.270.13FY15FY11FY12FY13FY14 Financial Performance
Selected Financial Data
For The Year Ended December 31,
2015
2014
2013
2012
2011
(in thousands, except per share data)
Statement of Operations Data:
Revenues .......................................................................................
$ 108,664 $ 108,663 $ 105,171 $ 111,171 $ 108,864
Cost of revenues ............................................................................
59,941 59,319 57,475 58,831 58,672
Gross profit ..............................................................................
48,723 49,344 47,696 52,340 50,192
Operating expenses .......................................................................
50,436 42,726 46,159 44,510 41,787
Operating (loss) income ...........................................................
(1,713 ) 6,618 1,537
7,830 8,405
Other expense, net ..................................................................
(1,895 )
(2,201 )
(1,102 )
(938 )
(1,537 )
(Loss) income from continuing operations before income taxes ..
(3,608 ) 4,417
435 6,892 6,868
Income tax expense (benefit) .........................................................
15,431 2,062
(288)
2,398 1,579
(Loss) income from continuing operations ...............................
(19,039 ) 2,355
723 4,494 5,289
Discontinued operations:
Loss from discontinued operations, net of tax .........................
–
–
(2,553 )
(2,124 )
(1,477 )
Net (loss) income .....................................................................
$ (19,039 ) $ 2,355 $ (1,830 ) $ 2,370 $ 3,812
(Loss) earnings per share:
Basic (loss) earnings per common share from continuing operations .. $
(0.57 ) $
0.07 $
0.02 $
0.16 $
0.19
Discontinued operations ..........................................................
0.00
0.00
(0.08 )
(0.07 )
(0.05 )
Basic (loss) earnings per common share .................................
$
(0.57 ) $
0.07 $
(0.06 ) $
0.09 $
0.14
Diluted (loss) earnings per common share from continuing operations .. $
(0.57 ) $
0.07 $
0.02 $
0.15 $
0.18
Discontinued operations ..........................................................
0.00
0.00
(0.08 )
(0.07 )
(0.05 )
Diluted (loss) earnings per common share ...............................
$
(0.57 ) $
0.07 $
(0.06 ) $
0.08 $
0.13
Weighted average common shares:
Basic .........................................................................................
33,593 32,171 30,384 28,799 28,451
Diluted ......................................................................................
33,593 33,237 31,914 29,793 29,819
As of December 31,
2015
2014
2013
2012
2011
(in thousands)
Balance Sheet Data:
Cash and cash equivalents .......................................................
$ 6,744 $ 14,134 $ 25,771 $ 20,681 $ 17,916
Working capital .........................................................................
31,140 38,964 44,665 49,071 48,004
Total assets ..............................................................................
120,217 135,916 135,460 133,484 126,634
Long-term debt, net of current portion ....................................
16,450 16,450 19,750 12,950 16,300
Stockholders’ equity .................................................................
77,598 95,468 94,485 104,213 95,499
Please refer to Item 6 beginning on page 22 in our Annual Report on Form 10-K for the year ended December 31, 2015,
included herein, for footnotes to our Selected Financial Data.
W W W . H A R V A R D B I O S C I E N C E . C O M
Robert Gagnon
Mr. Gagnon was appointed
Chief Financial Officer on
November 1, 2013. Prior to
joining the company he was
recently Executive Vice
President, Chief Financial
Officer and Treasurer at Clean
Harbors, Inc. (NYSE:CLH),
a leading provider of
environmental, energy and
industrial services throughout
North America. Prior to this,
he served in progressive
executive positions at
Biogen Idec, Inc., a
Fortune 500 company
developing treatments in the
areas of immunology and
neurology. Earlier, he worked in
a variety of senior positions at
Deloitte & Touche, LLP, and
PricewaterhouseCoopers, LLP.
He holds an M.B.A. from the
MIT Sloan School of
Management and a bachelor of
arts degree in accounting from
Bentley College.
Dear Fellow Shareholders
2015
was a year of investment at Harvard Bioscience.
We accomplished many of our goals which have positioned
the business for long term growth and an increase in
shareholder value which we believe it will produce. The year was highlighted by the
acquisition of HEKA Elektronik, the consolidation or relocation of five of our facilities,
and the launch of the first phase of a common ERP system.
In January 2015, we acquired HEKA Elektronik, which specializes in patch clamp
amplifier instrumentation for biomedical research applications. The acquisition of
HEKA compliments our existing electrophysiology portfolio, including our Warner
Instruments, Multi Channel Systems and Triangle BioSystems brands, and further
enhances our leadership in the electrophysiology equipment market.
During the year we completed the relocation or consolidation of five of our
facilities, including:
1. The relocation of our Denville Scientific distribution business
to Charlotte, North Carolina;
2. The consolidation of our Biochrom Limited manufacturing
operations to our Holliston, Massachusetts headquarters;
3. The consolidation of our HEKA Canada manufacturing
operations to our HEKA facility in Lambrecht, Germany;
4. The consolidation of our HEKA U.S. manufacturing
operations to our Hamden, Connecticut facility; and
5. The consolidation of our Coulbourn Instruments manufacturing
operations to our Holliston, Massachusetts headquarters.
These moves required a tremendous amount of time, effort and resources.
I am proud of our team in executing such transformative moves within the year.
We anticipate the right-sized global footprint and cost structure created by these
actions will result in savings of approximately $750 thousand to $1 million annually
beginning in 2016.
2015 also saw us complete the first phase of our implementation of a common
ERP system. In order to better manage a company built through acquisitions, it is
important for us to streamline systems, upgrade technology and better integrate
some of our legacy businesses. These enhancements will improve our ability to
compete in a global marketplace through targeted market expansion, as well as
integrated product offerings from our entire portfolio and future acquisitions.
Although we accomplished many of our goals for the year, and we are in a
better position today than we were a year ago at this time, our 2015 results were
impacted by two unforeseen challenges, specifically the impact from foreign currency
translation and GE Healthcare’s exit from the spectrophotometer business.
Foreign currency translation was a significant headwind for us throughout
2015. The EURO weakened more than 15% relative to the dollar year over year.
Approximately 35% of our revenues are in Europe, and these headwinds impacted
our business in multiple ways. In addition to currency translation, which impacted our
full year topline by more than $4 million, European customers faced constraints as a
result of purchasing U.S. priced or manufactured products with EURO denominated
budgets and grants.
H A R V A R D B I O S C I E N C E , I N C . • 2 0 1 5 A N N U A L R E P O R T
Additionally, we were notified by GE Healthcare during the second half of the year
of their decision to exit from their NanoVue and SimpliNano spectrophotometer product
lines. This impacted our full year topline by more than $2 million, however, I am happy to
report we signed a transition services agreement with GE Healthcare in December and
officially began selling direct and servicing Biochrom branded NanoVue and SimpliNano
spectrophotometers on January 1, 2016. Although it is still early in the transition, initial
responses from customers and distributors has been very positive. We are confident that
having a direct relationship with our channel partners and the ability to provide service
and support directly will allow us to grow the business and expand gross margins while
significantly improving customer satisfaction.
As we look to 2016, we still face challenges but the future looks bright. I’d like to
highlight four areas that have me excited to lead Harvard Bioscience in 2016 and beyond.
First, as I just mentioned, we have done a tremendous job in optimizing our global
footprint. The investment we made in 2015 to execute the facility consolidations will benefit
us through operational efficiencies, supplier optimization, and, most importantly, gross
margin expansion. We have begun to see the early impact to our gross margins in 2016.
Second, in December, Congress passed a budget which included a $2 billion funding
increase for the NIH. In addition to the increased budget earmarked for the NIH, a further
positive to an approved budget is the elimination of uncertainty around government
funding and shutdowns. This will help our academic and government customers in
making their spending decisions. Although it is hard to predict how the funds will be
spent, it is a positive sign for all life science companies, including Harvard Bioscience.
Third, the restructuring program we announced in October will eliminate
approximately $1 million in annual costs starting in 2016. The cost savings will come from
the elimination of certain positions within the organization, and other expenses.
Finally, I recently returned from a trip to China. We have made significant inroads
in China and other Asian markets. Although China is not a substantial portion of our
business yet, it is a stable market for us and a growth engine as we compete to gain
market share. We are continuing to make excellent progress there through our localized
approach, even despite significant changes taking place in the country. I have confidence
in our team in China as we focus on organic growth. On a global scale, our re-aligned and
re-invigorated commercial organization is prepared to deliver a successful 2016.
During 2015, we faced challenges but continue to be committed to our long-term
growth strategy. 2015 was a year of investment. We look forward to realizing the benefits
of our consolidation efforts and regaining strong top and bottom line growth in 2016.
Sincerely,
Jeffrey A. Duchemin
President & Chief Executive Officer
W W W . H A R V A R D B I O S C I E N C E . C O M
Corporate Information
Our Company
Harvard Bioscience, Inc., a Delaware corporation, is a global developer, manufacturer and
marketer of a broad range of scientific instruments, systems and lab consumables used to
advance life science for basic research, drug discovery, clinical and environmental testing.
Our products are sold to thousands of researchers in over 100 countries through our global
sales organization, websites, catalogs, and through distributors including Thermo Fisher
Scientific Inc., VWR, GE Healthcare, and other specialized distributors. We have sales and
manufacturing operations in the United States, the United Kingdom, Germany, Sweden,
Spain, France, Canada and China. Our vision is to be a world-leading life science company
that excels in meeting the needs of our customers by providing a wide breadth of innovative
products and solutions, while providing exemplary customer service.
Management
Jeffrey A. Duchemin
President & Chief Executive Officer
Robert E. Gagnon
Chief Financial Officer
Yong Sun
Vice President, Commercial
Operations
Stock Profile
Since the Company’s initial public
offering on December 7, 2000,
shares of Harvard Bioscience, Inc.
have been quoted on the Nasdaq
Global Market, and currently trade
under the symbol “HBIO”.
As of March 21, 2016, the Company
had 142 stockholders of record. The
Company believes that the number
of beneficial owners of our common
stock at that date was substantially
greater.
Corporate Address
HARVARD BIOSCIENCE, INC.
84 October Hill Road
Holliston, Massachusetts 01746
www.harvardbioscience.com
Independent
Registered Public
Accounting Firm
KPMG LLP
Two Financial Center
60 South Street
Boston, Massachusetts 02111
www.kpmg.com
General Counsel
Burns & Levinson LLP
125 Summer Street
Boston, Massachusetts 02110
Transfer Agent
& Registrar
COMPUTERSHARE LIMITED
250 Royall Street
Canton, Massachusetts 02021
Annual Meeting
of Stockholders
The Annual Meeting of Stockholders
of Harvard Bioscience, Inc. will be
held on Friday, June 24, 2016 at
11:00 a.m. local time, at the offices
of Burns & Levinson LLP, 125
Summer Street, Boston, MA 02110.
Investor Relations
To obtain copies of this annual
report or other financial
information, please write or call:
Investor Relations
Harvard Bioscience, Inc.
84 October Hill Road
Holliston, Massachusetts 01746
508-893-8066
Dividends
Harvard Bioscience, Inc. has never
declared or paid cash dividends
on its common stock and currently
has no plans to do so in the
foreseeable future.
Board of Directors
Jeffrey A. Duchemin
Our President & Chief Executive
Officer
David Green
Formerly CEO
Biostage, Inc. (f/k/a Harvard Appara-
tus Regenerative Technology, Inc.)
James W. Green
President & CEO
Analogic Corporation
Neal J. Harte, CPA
President
TACS Group
John F. Kennedy
Formerly President & CFO
Nova Ventures Corporation
Earl R. Lewis
Chairman
FLIR Systems, Inc.
Bertrand Loy
President & CEO
Entegris, Inc.
George Uveges
Principal
Tallwood Group
Price Range of
Common Stock
Year Ended December 31, 2015
Quarter
High
Low
First
Second
Third
Fourth
$ 5.82
$ 6.70
$ 5.63
$ 4.06
FY 2015 average
FY 2015 closing
$ 5.02
$ 5.15
$ 3.74
$ 2.87
$ 4.77
$ 3.47
Year Ended December 31, 2014
Quarter
High
Low
First
Second
Third
Fourth
$ 4.88
$ 4.74
$ 4.90
$ 5.67
FY 2014 average
FY 2014 closing
$ 4.10
$ 3.73
$ 4.09
$ 4.14
$ 4.53
$ 5.67
H A R V A R D B I O S C I E N C E , I N C . • 2 0 1 5 A N N U A L R E P O R T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FORM 10-K
For the fiscal year ended December 31, 2015
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(cid:95)
(cid:133)
For the transition period from to
Commission File Number 001-33957
HARVARD BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of Incorporation or organization)
04-3306140
(I.R.S. Employer Identification No.)
84 October Hill Road, Holliston, Massachusetts 01746
(Address of Principal Executive Offices, including zip code)
(508) 893-8999
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value Preferred Stock Purchase Rights
Name of each exchange on which registered
The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:133) NO (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:133) NO (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES (cid:95) NO (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). (cid:95) YES (cid:133)(cid:3) NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer (cid:133)(cid:3)
Non-accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Accelerated filer (cid:95)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. YES (cid:133) NO (cid:95)
The aggregate market value of 32,200,727 shares of voting common equity held by non-affiliates of the registrant as of June 30, 2015 was
approximately $183,544,144 based on the closing sales price of the registrant’s common stock, par value $0.01 per share on that date. Shares
of the registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the
outstanding voting power of the registrant have been excluded in that such persons may be deemed affiliates. This determination of affiliate
status is not a determination for other purposes. The registrant has no shares of non-voting common stock authorized or outstanding.
At March 21, 2016, there were 34,041,949 shares of the registrant’s common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement in connection with the 2016 Annual Meeting of Stockholders (the “Proxy
Statement”), to be filed within 120 days after the end of the Registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-
K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed
as part hereof.
THIS PAGE INTENTIONALLY LEFT BLANK
HARVARD BIOSCIENCE, INC.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2015
INDEX
PART I
Page
Item 1.
Business ................................................................................................................................................................
Item 1A. Risk Factors ..........................................................................................................................................................
1
8
Item 1B. Unresolved Staff Comments ................................................................................................................................. 19
Item 2.
Properties .............................................................................................................................................................. 20
Item 3.
Legal Proceedings ................................................................................................................................................ 20
Item 4. Mine Safety Disclosures ....................................................................................................................................... 20
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .............................................................................................................................................................. 21
Item 6.
Selected Financial Data ........................................................................................................................................ 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................ 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................... 38
Item 8.
Financial Statements and Supplementary Data .................................................................................................... 39
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................... 39
Item 9A. Controls and Procedures ....................................................................................................................................... 39
Item 9B. Other Information ................................................................................................................................................. 44
PART III
Item 10. Directors, Executive Officers and Corporate Governance.................................................................................... 44
Item 11. Executive Compensation ...................................................................................................................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............. 44
Item 13. Certain Relationships and Related Transactions, and Director Independence...................................................... 44
Item 14. Principal Accounting Fees and Services ............................................................................................................... 44
PART IV
Item 15. Exhibits, Financial Statement Schedules .............................................................................................................. 45
Index to Consolidated Financial Statements ......................................................................................................... F-1
Signatures
This Annual Report on Form 10-K contains statements that are not statements of historical fact and are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 (the “Exchange Act”), each as amended. The forward-looking statements are principally, but not exclusively, contained in
“Item 1: Business” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about
management’s confidence or expectations, our business strategy, our ability to raise capital or borrow funds to consummate
acquisitions and the availability of attractive acquisition candidates, our expectations regarding future costs of product revenues,
our anticipated compliance with the covenants contained in our credit facility, the adequacy of our financial resources and our
plans, objectives, expectations and intentions that are not historical facts. In some cases, you can identify forward-looking
statements by terms such as “may,” “will,” “should,” “could,” “would,” “seek,” “expects,” “plans,” “aim,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “intends,” “think,” “strategy,” “potential,” “objectives,” “optimistic,”
“new,” “goal” and similar expressions intended to identify forward-looking statements. These statements reflect our current
views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. We discuss many of these risks in detail under the
heading “Item 1A. Risk Factors” beginning on page 8 of this Annual Report on Form 10-K. You should carefully review all of
these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors,
including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this report. We may not update these forward-looking statements,
even though our situation may change in the future, unless we have obligations under the federal securities laws to update and
disclose material developments related to previously disclosed information. Harvard Bioscience, Inc. is referred to herein as
“we,” “our,” “us,” and “the Company.”
Item 1.
Business.
Overview
PART I
Harvard Bioscience, Inc., a Delaware corporation, is a global developer, manufacturer and marketer of a broad range of
scientific instruments, systems and lab consumables used to advance life science for basic research, drug discovery, clinical and
environmental testing. Our products are sold to thousands of researchers in over 100 countries through our global sales
organization, websites, catalogs, and through distributors including Thermo Fisher Scientific Inc., VWR, GE Healthcare, and
other specialized distributors. We have sales and manufacturing operations in the United States, the United Kingdom, Germany,
Sweden, Spain, France, Canada, and China.
Our History
Our business began in 1901 under the name Harvard Apparatus. It was founded by Dr. William T. Porter, a Professor of
Physiology at Harvard Medical School and a pioneer of physiology education. We have grown over the years with the
development and evolution of modern life science research and education. Our early inventions included ventilators based on
Dr. Porter’s design, the mechanical syringe pump for drug infusion in the 1950s, and the microprocessor controlled syringe pump
in the 1980s.
In March of 1996, a group of investors acquired a majority of the then existing business of our predecessor, Harvard
Apparatus, Inc. Following this acquisition, our focus was redirected to acquiring complimentary companies with innovative
technologies while continuing to grow the existing business through internal product development. Since 1996, we have
completed more than 25 business or product line acquisitions related to our continuing operations, including three acquisitions
beginning in the fourth quarter of 2014. We have also developed many new product lines including: new generation Harvard
Apparatus syringe pumps, PHD Ultra series of syringe pumps, advanced Inspira ventilators, GeneQuant DNA/RNA/protein
calculators, UVM plate readers, BTX Gemini X2 multi-waveform electroporation system, BioDrop micro-volume
spectrophotometer and cuvette, OxyletPro metabolic monitoring system, Multi Channel Systems’ automated four channel
PatchServer, DP-304A amplifiers, Allegro Peristaltic pump systems, Centrifan small-volume evaporators and advanced
VentElite ventilators.
From 2009 through November 1, 2013, our operations included two main businesses, the Life Science Research Tools
business and the Regenerative Medicine Device (“RMD”) business. In 2013, we consummated the spin-off of Harvard
Apparatus Regenerative Technology, Inc., the entity which operated our RMD business, to our existing shareholders by means
1
of a distribution of stock we owned in Harvard Apparatus Regenerative Technology, Inc. Harvard Apparatus Regenerative
Technology, Inc. changed its name to Biostage, Inc. in April 2016 and is referred to herein as Biostage.
In August 2013, Jeffrey A. Duchemin was hired by the Board of Directors to become the President and CEO of our
Company. Other key hires thereafter included Robert E. Gagnon, our Chief Financial Officer; Yong Sun, our Vice President,
Commercial Operations, and Ron Aplin, our Vice President, Global Operations and Quality. In February 2015, we appointed
Ryan Atienza to Vice President of Sales at our Denville Scientific subsidiary.
At the end of 2013 we began a multiple year restructuring program to reduce costs, align global functions, consolidate
facilities, and reinvest in key areas such as sales and IT. As part of the reinvestment, we initiated a multiple year plan in 2014 to
invest in and implement a new global enterprise resource planning platform. Additionally, during 2014, as part of the restructuring
program, we initiated plans to relocate and consolidate the distribution, finance and marketing operations of our Denville
Scientific, Inc. subsidiary (“Denville Scientific”) to Charlotte, North Carolina and our Holliston, MA headquarters, and relocate
the manufacturing operations of our Biochrom Ltd. subsidiary (“Biochrom”) to our Holliston, MA headquarters. During the first
quarter of 2015, we initiated plans to relocate the operations of our subsidiary, Coulbourn Instruments, LLC (“Coulbourn”), to
our Holliston, MA headquarters. During the second quarter of 2015, we initiated plans to relocate the operations of HEKA
Electronics Incorporated, our HEKA Canada subsidiary (“HEKA Canada”), to HEKA Electronik Dr. Schulze GmbH, our HEKA
Germany subsidiary (“HEKA Germany”). Also during the second quarter of 2015, and simultaneously with the HEKA Canada
move, we initiated plans to relocate the operations of HEKA Instruments Incorporated, our United States HEKA subsidiary
(“HEKA U.S.”, and together with HEKA Canada and HEKA Germany, “HEKA”), to our Holliston, MA headquarters.
Additionally, we committed to a restructuring plan on October 27, 2015, which included eliminating certain redundancies as a
result of our site consolidations, as well as a realignment of our commercial sales team. We believe the overall restructuring
program positions Harvard Bioscience to stabilize, focus on, and grow the life science business going forward.
During the fourth quarter of 2014, we acquired two businesses with advanced electrophysiology technologies, Multi
Channel Systems MCS GmbH (“MCS”), and Triangle BioSystems, Inc. (“TBSI”). MCS is a developer, manufacturer and
marketer of in vitro and in vivo electrophysiology instrumentation for extracellular recording and stimulation. This acquisition
is complementary to the in vitro electrophysiology line currently offered by our wholly-owned Warner Instruments subsidiary.
TBSI is a developer, manufacturer and marketer of wireless neural interface equipment to aid in vivo neuroscience research,
especially in the fields of electrophysiology, psychology, neurology and pharmacology. This acquisition is complementary to the
behavioral neuroscience lines currently offered by our wholly-owned Panlab and Coulbourn subsidiaries. Additionally, in
January 2015, we acquired HEKA. HEKA is a developer, manufacturer and marketer of sophisticated electrophysiology
instrumentation and software for biomedical and industrial research applications. This acquisition is complimentary to the
electrophysiology line currently offered by our Warner Instruments and MCS subsidiaries.
Our Strategy
Our vision is to be a world leading life science company that excels in meeting the needs of our customers by providing a
wide breath of innovative products and solutions, while providing exemplary customer service. Our business strategy is to grow
our top-line and bottom-line, and build shareholder value through a commitment to:
•
•
•
•
commercial excellence and organic growth;
new product development;
strategic acquisitions; and
operational efficiencies.
Our Products
Today, our broad core product range is organized into three commercial product families: Cell and Animal Physiology
(“CAP”), Lab Products and Services (“LPS”), and Molecular Separation and Analysis (“MSA”). We primarily sell these products
under brand names, including Harvard Apparatus, KD Scientific, Denville Scientific, AHN, Hoefer, Biochrom, BTX, Warner
Instruments, MCS, HEKA, Hugo Sachs Elektronik, Panlab, Coulbourn Instruments, TBSI, and CMA Microdialysis.
Our products consist of instruments, consumables, and systems that are made up of several individual products. Sales
prices of these products are mostly under $5,000 but range from under $100 to over $100,000. We manufacture our products at
our locations in the United States, Germany, Sweden and Spain.
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In addition to our proprietary manufactured products, we sell many products that are made by other manufacturers. These
distributed products accounted for approximately 37% of our revenues for the year ended December 31, 2015. Distributed
products enable us to provide our customers with a single source for their research needs, and consist of a large variety of devices,
instruments and consumable items used in experiments involving fluid handling, molecular and cell biology, tissue, organ and
animal research. Many of our proprietary manufactured products are leaders in their fields; however, researchers often need
complementary products in order to conduct particular experiments. Following is a description of each product family.
Cell and Animal Physiology Product Family
Our CAP product family includes our traditional syringe pump and peristaltic pump product lines, as well as a broad range
of instruments and accessories for tissue, organ and animal based lab research, including surgical products, infusion systems,
microdialysis instruments, behavior research systems, isolated organ and tissue bath systems, and in vivo and in vitro
electrophysiology recording, stimulation and analysis systems. Our product offerings are marketed through our Harvard
Apparatus, CMA Microdialysis, Panlab, Coulbourn, Hugo-Sachs, InBreath Bioreactor, MCS, TBSI and HEKA brands and
entities. We sell these products through our global sales force, technical service team and our global distribution channel. Our
CAP product family made up approximately 50% of our global revenues for the year ended December 31, 2015.
Lab Products and Services Product Family
Our LPS product family includes a range of products for molecular biology labs with a liquid handling focus. It consists
primarily of pipettes and pipette tips, gloves, gel electrophoresis equipment and reagents, autoradiography films, thermal cycler
accessories and reagents, sample preparation columns, tissue culture products, and general lab equipment and consumables. Our
brands include Denville Scientific, AHN, and others. We sell these products through our global sales force and global distribution
channel. LPS product family made up approximately 27% of our global revenues for the year ended December 31, 2015.
Molecular Separation and Analysis Product Family
The MSA product family includes spectrophotometers, microplate readers, amino acid analyzers, gel electrophoresis
equipment, and electroporation instruments. A spectrophotometer is an instrument widely used in molecular biology and cell
biology to quantify the amount of DNA and protein in a sample. We sell a wide range of spectrophotometers under the names
Libra, WPA and BioDrop. We sell them primarily through our distribution arrangements with various distributors. Multi-well
plate readers are widely used for high throughput screening assays in the drug discovery process. Our product line includes
absorbance readers and luminescence readers. We sell them primarily through our global distribution channel. An amino acid
analysis system uses chromatography to separate the amino acids in a sample and then uses a chemical reaction to detect each
one as they flow out of the chromatography column. We sell these systems under the Biochrom brand through our United States
direct sales force and global distribution channel. Gel electrophoresis is widely used in labs to separate and analyze DNA, RNA
and proteins samples and their fragments, based on their size and charge. We sell our electrophoresis equipment under Hoefer
and Scie-Plas brands through our global distribution channel. Electroporation is a technique for transfection, a process to
introduce nucleic acid into cells. Our electroporation and electrofusion products include systems and generators, electrodes and
accessories for research applications including in vivo, and in vitro gene delivery, cell fusion and nuclear transfer cloning. We
sell these products under the Harvard Apparatus BTX brand through our global distribution channel. Our MSA product family
made up approximately 23% of our global revenues for the year ended December 31, 2015.
Our Customers
Our end-user customers are primarily research scientists at universities, hospitals, government laboratories, including the
United States National Institute of Health (“NIH”), and pharmaceutical and biotechnology companies. Our academic customers,
which account for approximately 70% of our revenues, include major colleges and universities such as Harvard University,
Cambridge University, Johns Hopkins University, Massachusetts Institute of Technology, Yale University, the University of
California system, Baylor College of Medicine, and the University of Texas - MD Anderson Center. Our pharmaceutical and
biotechnology customers have included pharmaceutical companies and research laboratories such as Amgen, Inc., AstraZeneca
plc, Genentech, Inc. and Johnson & Johnson. We have tens of thousands of customers worldwide and no customer accounted for
more than 10% of our revenues in 2015.
3
Sales and Marketing
We conduct direct sales in the United States, the United Kingdom, Germany, France, Spain, Sweden, Canada and China.
We sell primarily through distributors in other countries. For the year ended December 31, 2015, revenues from direct sales to
end-users represented approximately 63% of our revenues; and revenues from sales of our products through distributors
represented approximately 37% of our revenues.
Direct Sales
We have a global sales organization managing both direct sales and distributors. Our websites and catalogs serve as the
primary sales tool for our Harvard Apparatus, Denville and other product lines, which includes both proprietary manufactured
products and complementary products from various suppliers. Our reputation as a leading producer of many of our manufactured
products creates traffic to our websites, enables cross-selling and facilitates the introduction of new products.
Distributors
We engage distributors for the sales of our own branded and private label products in certain areas of the world and for
certain product lines. During the third quarter of 2015, GE Healthcare, one of our largest distributors, informed us of its decision
to discontinue the sale of its spectrophotometer products by the end of 2015. This line of products includes the GE brands
NanoVue and SimpliNano, which are products that we have already been manufacturing. As of January 1, 2016, we are selling
the NanoVue and SimpliNano spectrophotometers through our own direct sales force and through distribution partners, as well
as servicing previously sold products in the field.
Research and Development
Our principal research and development mission is to develop products that address growth opportunities within the life
science research process, as well as to maintain and optimize our existing product portfolios. We maintain development staff in
many of our manufacturing facilities to design and develop new products and to re-engineer existing products to bring them to
the next generation. Our research and development expenses from continuing operations were approximately $6.4 million, $4.9
million and $4.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. In addition, we funded the research
and development expenses of our RMD business which were approximately $3.1 million for the year ended December 31, 2013.
The RMD research and development expenses were classified as part of discontinued operations for the year ended December
31, 2013. We anticipate that we will continue to make investments in research and development activities as we deem appropriate.
We plan to continue to pursue a balanced development portfolio strategy of originating new products from internal research and
acquiring products through business and technology acquisitions.
Manufacturing
We manufacture and test the majority of our products in our principal manufacturing facilities located in the United States,
Sweden, Spain and Germany. We have considerable manufacturing flexibility at our various facilities, and each facility can
manufacture multiple products at the same time. We maintain in-house manufacturing expertise, technologies and resources. We
seek to maintain multiple suppliers for key components that are not manufactured in-house, and while some of our products are
dependent on sole-source suppliers, we do not believe our dependence upon these suppliers creates any significant risks.
Our manufacturing operations primarily involve assembly and testing activities along with some machine based processes.
Manufacturing Activity
Manufacturing Facility
syringe pumps, ventilators, cell injectors, molecular sample preparation products, electroporation products,
electrophysiology products, spectrophotometers, amino acid analysis systems, low-volume, high-throughput
liquid dispensers, plate readers, behavioral research products, and microdialysis products
electrophysiology products
electrophysiology products
electrophysiology products
complete organ testing systems
electrophoresis products
behavioral research products
behavioral research products
microdialysis products
fluid handling products
Holliston, Massachusetts
Hamden, Connecticut
Reutlingen, Germany
Lambrecht, Germany
March-Hugstetten, Germany
Richmond, California
Barcelona, Spain
Durham, North Carolina
Kista, Sweden
Nordhausen, Germany
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Going forward we will continue to evaluate our manufacturing facilities and operations in order to maintain an optimal
manufacturing footprint.
Competition
The markets into which we sell our products are highly competitive, and we expect the intensity of competition to continue
or increase. We compete with many companies engaged in developing and selling tools for life science research. Many of our
competitors have greater financial, operational, sales and marketing resources, and more experience in research and development
and commercialization than we have. Moreover, our competitors may have greater name recognition than we do, and many offer
discounts as a competitive tactic. These competitors and other companies may have developed or could in the future develop
new technologies that compete with our products, which could render our products obsolete. We cannot assure you that we will
be able to make the enhancements to our technologies necessary to compete successfully with newly emerging technologies. We
believe that we offer one of the broadest selections of products to organizations engaged in life science research. We have
numerous competitors on a product line basis. We believe that we compete favorably with our competitors on the basis of product
performance, including quality, reliability and speed, technical support, price and delivery time.
We compete with several companies that provide instruments for life science research including, Lonza Group Ltd., Becton
Dickinson, Eppendorf AG, Kent Scientific Corporation, Razel Scientific Instruments, Inc., Ugo Basile, Danaher Corporation,
Bio-Rad Laboratories, Inc., PerkinElmer, Inc. and Thermo Fisher Scientific, Inc.
We cannot forecast if or when these or other companies may develop competitive products. We expect that other products
will compete with our products and potential products based on efficacy, safety, cost and intellectual property positions. While
we believe that these will be the primary competitive factors, other factors include, in certain instances, availability of supply,
manufacturing, marketing and sales expertise and capability.
Seasonality
Sales and earnings in our third quarter are usually flat or down from the second quarter primarily because there are a large
number of holidays and vacations during such quarter, especially in Europe. Our fourth quarter revenues and earnings are often
the highest in any fiscal year compared to the other three quarters, primarily because many of our customers tend to spend
budgeted money before their own fiscal year ends.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright,
trademark and trade-secret laws, as well as confidentiality provisions in our contracts. Patents or patent applications cover certain
of our new technologies. Most of our more mature product lines are protected by trade names and trade secrets only.
We have implemented a patent strategy designed to provide us with freedom to operate and facilitate commercialization
of our current and future products. Our success depends, to a significant degree, upon our ability to develop proprietary products
and technologies. We intend to continue to file patent applications as we develop new products and technologies.
Patents provide some degree of protection for our intellectual property. However, the assertion of patent protection involves
complex legal and factual determinations and is therefore uncertain. The scope of any of our issued patents may not be sufficiently
broad to offer meaningful protection. In addition, our issued patents or patents licensed to us may be successfully challenged,
invalidated, circumvented or unenforceable so that our patent rights would not create an effective competitive barrier. Moreover,
the laws of some foreign countries may protect our proprietary rights to a greater or lesser extent than the laws of the United
States. In addition, the laws governing patentability and the scope of patent coverage continue to evolve, particularly in areas of
interest to us. As a result, there can be no assurance that patents will be issued from any of our patent applications or from
applications licensed to us. As a result of these factors, our intellectual property positions bear some degree of uncertainty.
5
We also rely in part on trade-secret protection of our intellectual property. We attempt to protect our trade secrets by
entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign
agreements requiring that they assign to us their interests in patents and copyrights arising from their work for us. Although many
of our United States employees have signed agreements not to compete unfairly with us during their employment and after
termination of their employment, through the misuse of confidential information, soliciting employees, soliciting customers and
the like, the enforceability of these provisions varies from jurisdiction to jurisdiction and, in some circumstances, they may not
be enforceable. In addition, it is possible that these agreements may be breached or invalidated and if so, there may not be an
adequate corrective remedy available. Despite the measures we have taken to protect our intellectual property, we cannot assure
you that third parties will not independently discover or invent competing technologies, or reverse engineer our trade secrets or
other technologies. Therefore, the measures we are taking to protect our proprietary rights may not be adequate.
We do not believe that our products infringe on the intellectual property rights of any third party. We cannot assure you,
however, that third parties will not claim such infringement by us or our licensors with respect to current or future products. We
expect that product developers in our market will increasingly be subject to such claims as the number of products and
competitors in our market segment grows and the product functionality in different market segments overlaps. In addition, patents
on production and business methods are becoming more common and we expect that more patents will be issued in our technical
field. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of management’s
attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Moreover,
such royalty or licensing agreements, if required, may not be on terms advantageous to us, or acceptable at all, which could
seriously harm our business or financial condition.
“Harvard” is a registered trademark of Harvard University. The marks “Harvard Apparatus” and “Harvard Bioscience” are
being used pursuant to a license agreement entered into in December 2002 between us and Harvard University.
Government Regulation
We are not subject to direct governmental regulation other than the laws and regulations generally applicable to businesses
in the domestic and foreign jurisdictions in which we operate. In particular, our current products are not subject to pre-market
approval by the United States Food and Drug Administration (“FDA”) for use on human clinical patients. In addition, we believe
we are currently in compliance with all relevant environmental laws.
Employees
As of December 31, 2015, we employed 437 employees, of which 412 are full-time and 25 are part-time. As of December
31, 2014, we employed 447 employees, of which 417 were full-time and 30 were part-time. The decrease in the number of
employees was primarily due to our facility consolidations in 2015, partially offset by the acquisition of HEKA during 2015.
Geographical residence information for these employees is summarized in the table below:
As of December 31, 2015
United States ..........................................................................................................................................................
Germany .................................................................................................................................................................
United Kingdom .....................................................................................................................................................
Spain ......................................................................................................................................................................
Canada ....................................................................................................................................................................
Sweden ...................................................................................................................................................................
China ......................................................................................................................................................................
France .....................................................................................................................................................................
Total .......................................................................................................................................................................
221
130
36
27
9
7
5
2
437
6
Discontinued Operations
In September 2008, we completed the sale of assets of our Union Biometrica Division (“UBI”) to UBIO Acquisition
Company. During 2013, we received earn-out payments, including interest, from UBIO Acquisition Company, of $1.8 million
related to the 2008 acquisition. UBIO Acquisition Company’s final payment under the earn-out obligation was received in
October 2013.
On November 1, 2013, the previously announced spin-off of Biostage from our Company was completed. Through the
spin-off date the historical operations of Biostage were reported as continuing operations in our consolidated statements of
operations. Following the spin-off, and reported herein, the historical operations of Biostage were broken out and reported as
discontinued operations for all periods presented. Biostage became an independent company that operates the regenerative
medicine business previously owned by us. The spin-off was completed through the distribution to Harvard Bioscience’s
stockholders of record all the shares of common stock of Biostage (the “Distribution”). In the Distribution, we distributed to our
stockholders one share of Biostage common stock for every four shares of Harvard Bioscience common stock outstanding as of
the close of business on October 21, 2013, the record date for the Distribution.
Effective with the spin-off, we contributed $15.0 million in cash to Biostage to fund its operations. In addition, we
transferred approximately $0.9 million in net assets to Biostage as part of the spin-off.
We intend for the Biostage contribution and Distribution, taken together, to qualify as a reorganization pursuant to which
no gain or loss is recognized by us or our stockholders for federal income tax purposes under Sections 355, 368(a)(1)(D) and
related provisions of the Internal Revenue Code. On June 28, 2013, we received a Supplemental Ruling to the Private Letter
Ruling dated March 22, 2013 from the IRS to the effect that, among other things, the spin-off will qualify as a transaction that is
tax-free for United States federal income tax purposes under Section 355 and 368(a)(1)(D) of the Internal Revenue Code
continuing in effect. We also have received an opinion from our outside tax advisor to such effect. In connection with the ruling
and the opinion, we made certain representations regarding ourselves and our business. We and Biostage have each agreed that
we will not take or fail to take any action which prevents or could reasonably be expected to prevent the tax-free status of the
spin-off. Biostage also agreed to certain specific restrictions that expired two years following the Distribution, and which were
intended to preserve the tax-free status of the contribution and the Distribution.
In addition, current United States federal income tax law creates a presumption that our spin-off of Biostage would be
taxable to us, but not our stockholders, if such spin-off is part of a “plan or series of related transactions” pursuant to which one
or more persons acquire directly or indirectly stock representing a 50% or greater interest (by vote or value) in us or Biostage.
Acquisitions that occur during the four-year period that begins two years before the date of the spin-off are presumed to occur
pursuant to a plan or series of related transactions, unless it is established that the acquisition is not pursuant to a plan or series
of transactions that includes the spin-off. United States Treasury regulations currently in effect generally provide that whether
an acquisition and a spin-off are part of a plan is determined based on all of the facts and circumstances, including, but not limited
to, specific factors described in the United States Treasury regulations. In addition, the United States Treasury regulations provide
several “safe harbors” for acquisitions that are not considered to be part of a plan. These rules limited our ability during the two-
year period following the spin-off to enter into certain transactions that may be advantageous to us and our stockholders,
particularly issuing equity securities to satisfy financing needs, repurchasing equity securities, disposing of certain assets,
engaging in mergers and acquisitions, and, under certain circumstances, acquiring businesses or assets with equity securities or
agreeing to be acquired.
Geographic Area
Financial information regarding geographic areas in which we operate is provided in Note 21 of the “Notes to Consolidated
Financial Statements,” which are included elsewhere in this report.
Executive Officers of the Registrant
The following table shows information about our executive officers as of December 31, 2015.
Age Position
Name
Jeffrey Duchemin .... 50 Chief Executive Officer, President and Director
Robert Gagnon ........ 41 Chief Financial Officer
Yong Sun ................. 52 Vice President, Commercial Operations
Jeffrey A. Duchemin was appointed Chief Executive Officer on August 26, 2013. He assumed the additional roles of
President on November 1, 2013 and Director on October 29, 2013. Prior to joining Harvard Bioscience, Mr. Duchemin spent 16
7
years with Becton Dickinson (“BD”) in progressive sales, marketing and executive leadership positions across BD’s three
business segments; BD Medical Systems, BD Diagnostic Systems, and BD Biosciences. In October 2012, BD Biosciences
Discovery Labware was acquired by Corning Life Sciences. Mr. Duchemin was a Global Business Director for Corning Life
Sciences until his departure to Harvard Bioscience. Mr. Duchemin is a transformational leader with demonstrated business
results. The depth of his experience spans across a broad range of life science research and medical device products resulting in
growth on a global basis. Mr. Duchemin earned an M.B.A. from Southern New Hampshire University and a B.S. in accounting
from the University of Massachusetts Dartmouth.
Robert E. Gagnon was appointed Chief Financial Officer on November 1, 2013. Prior to joining the company he was
recently Executive Vice President, Chief Financial Officer and Treasurer at Clean Harbors, Inc. (NYSE:CLH), a leading provider
of environmental, energy and industrial services throughout North America. Prior to this, he served in progressive executive
positions at Biogen Idec, Inc., a Fortune 500 company developing treatments in the areas of immunology and neurology. Earlier,
he worked in a variety of senior positions at Deloitte & Touche, LLP, and PricewaterhouseCoopers, LLP. Mr. Gagnon holds an
M.B.A. from the MIT Sloan School of Management and a B.A. in accounting from Bentley College.
Yong Sun assumed the role of Vice President, Commercial Operations on October 28, 2015. Previously Mr. Sun held the
position of Vice President, Strategic Marketing and Business Development and Vice President, R&D since October 28, 2013
and March 10, 2014, respectively. Prior to joining Harvard Bioscience, he served as Vice President of Global Marketing and
Americas Sales at Beaver-Visitec International, a company combining former ophthalmic business units from BD and Medtronic;
in this role he led global marketing to develop and implement strategic marketing plans in target surgical markets. Prior to this,
he served in progressive positions at BD, including Director of Global Marketing & United States Sales. Earlier, he served as
Marketing Manager, Global Life Sciences Market & Greater China Region at Eli Lilly & Company’s eLilly Unit (now
InnoCentive, Inc.). Mr. Sun, holds an M.B.A. from the MIT Sloan School of Management, a M.S. in environmental science &
engineering from Northeastern University and a B.S. in biochemistry from Peking University.
Available Information and Website
Our website address is www.harvardbioscience.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-
Q, Current Reports on Form 8-K, and exhibits and amendments to those reports filed or furnished with the Securities and
Exchange Commission pursuant to Section 13(a) of the Exchange Act are available for review on our website and the Securities
and Exchange Commission’s website at www.sec.gov. Any such materials that we file with, or furnish to, the SEC in the future
will be available on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the
SEC. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Item 1A. Risk Factors.
The following factors should be reviewed carefully, in conjunction with the other information contained in this Annual
Report on Form 10-K. As previously discussed, our actual results could differ materially from our forward-looking statements.
Our business faces a variety of risks. These risks include those described below and may include additional risks and
uncertainties not presently known to us or that we currently deem immaterial. If any of the events or circumstances described in
the following risk factors occur, our business operations, performance and financial condition could be adversely affected and
the trading price of our common stock could decline.
Reductions in customers’ research budgets or government funding may adversely affect our business.
Many of our customers representing a significant portion of our revenues are universities, government research
laboratories, private foundations and other institutions who are dependent for their funding upon grants from U.S. government
agencies, such as the United States National Institutes of Health (“NIH”), and agencies in other countries. Research and
development spending of our customers can fluctuate based on spending priorities and general economic conditions. The level
of government funding of research and development is unpredictable. There have been instances where NIH grants have been
frozen or otherwise unavailable for extended periods. Any reduction or delay in governmental spending could cause our
customers to delay or forego purchases of our products. If government funding necessary to purchase our products were to
decrease, our business and results of operations could be materially adversely affected. Spending by some of these customers
fluctuates based on budget allocations and the timely passage of the annual federal budget. An impasse in federal government
budget decisions could lead to substantial delays or reductions in federal spending.
Domestic and global economic conditions could adversely affect our operations.
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic
and global economic conditions. If global economic and market conditions, or economic conditions in the United States,
8
deteriorate, we may experience an adverse effect on our business, operating results and financial condition. Concerns about credit
markets, consumer confidence, economic conditions, government spending to sponsor life science research, volatile corporate
profits and reduced capital spending could negatively impact demand for our products. If economic growth in the United States
and other countries slows or deteriorates, customers may delay or forego purchases of our products. Unstable economic, political
and social conditions make it difficult for our customers, our suppliers and us to accurately forecast and plan future business
activities. If such conditions exist, our business, financial condition and results of operations could suffer. We cannot project the
extent of the impact of the economic environment on our industry or us.
Our business is subject to economic, political and other risks associated with international revenues and operations.
We manufacture and sell our products worldwide and as a result, our business is subject to risks associated with doing
business internationally. A substantial amount of our revenues are derived from international operations, and we anticipate that
a significant portion of our sales will continue to come from outside the United States in the future. We anticipate that revenues
from international operations will continue to represent a substantial portion of our revenues in the foreseeable future and is
likely to increase as a result of our efforts to expand our business in markets abroad. In addition, a number of our manufacturing
facilities and suppliers are located outside the United States. Our foreign operations subject us to certain risks, including: effects
of fluctuations in foreign currency exchange rates (discussed below); the impact of local economic conditions; local product
preferences and seasonality (discussed below) and product requirements; local difficulty to effectively establish and expand our
business and operations in international markets; disruptions of capital and trading markets; restrictions and potentially negative
tax implications of transfer of capital across borders; differing labor regulations; other factors beyond our control, including
potential political instability, terrorism, acts of war, natural disasters and diseases; unexpected changes and increased enforcement
of regulatory requirements and various state, federal and international, intellectual property, environmental, antitrust, anti-
corruption, fraud and abuse (including anti-kickback and false claims laws) and employment laws; and interruption to
transportation flows for delivery of parts to us and finished goods to our customers.
Specifically with respect to the expansion of our business into China, our financial performance may be subject to the
following risks, among others affecting companies that operate in China: the impact of declining economic growth in China;
regulation of foreign investment and business activities by the Chinese government, including recent scrutiny of foreign
companies, may limit our ability to expand our business in China; uncertainties with respect to the legal system in China may
limit the legal protections available to us in China; government restrictions on the remittance of currency out of China and the
ability of any subsidiary we may establish in China to pay dividends and make other distributions to us; and potential unfavorable
tax consequences as a result of our operations in China.
Under the United States tax code, we may also be subject to additional taxation to the extent we repatriate earnings from
our foreign operations to the United States. In the event we require more capital in the United States than is generated by our
United States operations to fund acquisitions or other activities and elect to repatriate earnings from foreign jurisdictions, our
effective tax rate may be higher as a result.
Foreign currency exchange rate fluctuations may have a negative impact on our reported earnings.
We are also subject to the risks of fluctuating foreign currency exchange rates, which could have an adverse effect on the
sales price of our products in foreign markets, as well as the costs and expenses of our foreign subsidiaries. A substantial amount
of our revenues are derived from international operations, and we anticipate that a significant portion of revenues will continue
to come from outside the United States in the future. As a result, currency fluctuations among the United States dollar, euro and
the other currencies in which we do business have caused and will continue to cause foreign currency translation and transaction
gains and losses. We have not used forward exchange contracts to hedge our foreign currency exposures. We attempt to manage
foreign currency risk through the matching of assets and liabilities. In the future, we may undertake to manage foreign currency
risk through hedging methods, including foreign currency contracts. We recognize foreign currency gains or losses arising from
our operations in the period incurred. We cannot guarantee that we will be successful in managing foreign currency risk or in
predicting the effects of exchange rate fluctuations upon our future operating results because of the number of currencies
involved, the variability of currency exposure and the potential volatility of currency exchange rates. We cannot predict with any
certainty changes in foreign currency exchange rates or the degree to which we can address these risks.
A portion of our revenues are derived from customers from the pharmaceutical and biotechnology industries and are subject
to risks faced by those industries. Such risks may adversely affect our financial results.
We derive a portion of our revenues from pharmaceutical and biotechnology companies. We expect that pharmaceutical
and biotechnology companies will continue to be a significant source of our revenues for the foreseeable future. As a result, we
are subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as government regulation,
9
ongoing consolidation, uncertainty of technological change, and reductions and delays in research and development expenditures
by companies in these industries.
In particular, the biotechnology industry is largely dependent on raising capital to fund its operations. If biotechnology
companies that are our customers are unable to obtain the financing necessary to purchase our products, our business and results
of operations could be adversely affected. In addition, we are dependent, both directly and indirectly, upon general health care
spending patterns, particularly in the research and development budgets of the pharmaceutical and biotechnology industries, as
well as upon the financial condition and purchasing patterns of various governments and government agencies. As it relates to
both the biotechnology and pharmaceutical industries, many companies have significant patents that have expired or are about
to expire, which could result in reduced revenues for those companies. If pharmaceutical or biotechnology companies that are
our customers suffer reduced revenues as a result of these patent expirations, they may be unable to purchase our products, and
our business and results of operations could be adversely affected.
Our revenues will likely be affected by various factors, including the timing of purchases by customers and the seasonal
nature of purchasing in Europe.
Our revenues will likely be affected by various factors, including the seasonal nature of purchasing in Europe. Our revenues
may vary from quarter to quarter due to a number of factors, including new product introductions, the release of grant and budget
funding, future acquisitions and our substantial sales to European customers, who in summer months often defer purchases. In
particular, delays or reduction in purchase orders from the pharmaceutical and biotechnology industries could have an adverse
effect on us and could adversely affect our stock price.
We continue to expand our business into foreign countries and international markets. If our products are not accepted in
these new markets our financial performance may suffer.
We continue to aggressively expand our sales and marketing efforts in foreign countries and international markets. The
cost and diversion of resources to these efforts may not result in an increase in revenues in our business. Expansion of our
business into new markets may be more costly and require the devotion of more of our management’s time than we anticipate,
which may hurt our business performance in other markets. Our operating results may suffer to the extent that our efforts to
expand our product sales in these new markets are delayed or prove to be unsuccessful.
We may not realize the expected benefits of our facility consolidations.
We have invested significant resources in facility consolidations. The goal is to increase profit margins by improving
manufacturing efficiency, simplifying administrative and regulatory functions, and reducing tax liabilities. We cannot assure that
we will achieve the expected benefits of these initiatives. Among other things, costs could exceed current estimates, product
manufacturing could be affected by fluctuating customer demands and delays or supply interruptions, changes in tax laws could
reduce or eliminate expected benefits of some of our tax strategies, tax authorities may challenge our tax strategy, or future profit
margins could be affected by a variety of factors unrelated to our level of manufacturing efficiency.
If we are not able to manage our growth, our operating profits or losses may be adversely impacted.
Our success will depend on the expansion of our operations through both organic growth and acquisitions. Effective growth
management will place increased demands on our management team, operational and financial resources and expertise. To
manage growth, we must expand our facilities, optimize our operational, financial and management systems, and hire and train
additional qualified personnel. Failure to manage this growth effectively could impair our ability to generate revenues or could
cause our expenses to increase more rapidly than revenues, resulting in operating losses or reduced profitability.
The life sciences industry is very competitive.
We expect to encounter increased competition from both established and development-stage companies that continually
enter the market. These include companies developing and marketing life science instruments, systems and lab consumables,
health care companies that manufacture laboratory-based tests and analyzers, diagnostic and pharmaceutical companies,
analytical instrument companies, and companies developing life science or drug discovery technologies. Currently, our principal
competition comes from established companies that provide products that perform many of the same functions for which we
market our products. Many of our competitors have substantially greater financial, operational, marketing and technical resources
than we do. Moreover, these competitors may offer broader product lines and tactical discounts, and may have greater name
recognition. In addition, we may face competition from new entrants into the field. We may not have the financial resources,
technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, we face
10
changing customer preferences and requirements, including increased customer demand for more environmentally-friendly
products.
The life sciences industry is also subject to rapid technological change and discovery. The development of new or improved
products, processes or technologies by other companies may render our products or proposed products obsolete or less
competitive. In some instances, our competitors may develop or market products that are more effective or commercially
attractive than our current or future products. To meet the evolving needs of customers, we must continually enhance our current
and planned products and develop and introduce new products. However, we may experience difficulties that may delay or
prevent the successful development, introduction and marketing of new products or product enhancements. In addition, our
product lines are based on complex technologies that are subject to change as new technologies are developed and introduced in
the marketplace. We may have difficulty in keeping abreast of the changes affecting each of the different markets we serve or
intend to serve. Our failure to develop and introduce products in a timely manner in response to changing technology, market
demands or the requirements of our customers could cause our product sales to decline, and we could experience significant
losses.
We offer and plan to offer a broad range of products and have incurred and expect to continue to incur substantial expenses
for development of new products and enhanced versions of our existing products. The speed of technological change in our
market may prevent us from being able to successfully market some or all of our products for the length of time required to
recover development costs. Failure to recover the development costs of one or more products or product lines could decrease our
profitability or cause us to experience significant losses.
We have identified material weaknesses in our internal control over financial reporting and such weaknesses have led
to a conclusion that our disclosure controls and procedures were not effective as of December 31, 2015. Our ability to
remediate these material weaknesses, our discovery of additional weaknesses, and our inability to achieve and maintain
effective disclosure controls and procedures and internal control over financial reporting, have and could continue to
adversely affect our results of operations, our stock price and investor confidence in our company.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal
control over financial reporting. In addition, our independent registered public accounting firm must report on its evaluation of
those controls. As disclosed in more detail under "Controls and Procedures" in Part II, Item 9A of this Report, we have identified
material weaknesses as of December 31, 2015 in our internal control over financial reporting resulting from our failure to
maintain an effective control environment, risk assessment processes and monitoring activities. Due to these material weaknesses
in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective
as of December 31, 2015.
Failure to have effective internal control over financial reporting and ineffectiveness of disclosure controls and procedures
could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of our financial
statements. If, as a result of deficiencies in our internal control over financial reporting and ineffectiveness of our disclosure
controls and procedures, we cannot provide reliable financial statements, our business decision processes may be adversely
affected, our business and results of operations could be harmed, investors could lose confidence in our reported financial
information and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected.
In addition, failure to maintain effective internal control over financial reporting could result in investigations or sanctions by
regulatory authorities.
Our management has taken immediate action to begin remediating these material weaknesses, however, certain other
remedial actions have not started or have only recently been undertaken, and while we expect to continue to implement our
remediation plan through 2016, we cannot be certain as to when remediation will be fully completed. Additional details regarding
the initial remediation efforts are disclosed in more detail under "Controls and Procedures" in Part II, Item 9A of this Report. In
addition, we may in the future identify additional internal control deficiencies that could rise to the level of a material weakness
or uncover errors in financial reporting. During the course of our evaluation, we may identify areas requiring improvement and
may be required to design additional enhanced processes and controls to address issues identified through this review. In addition,
there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will
be effective as a result of these efforts or that any such future deficiencies identified may not be material weaknesses that would
be required to be reported in future periods. In addition, we cannot assure you that our independent registered public accounting
firm will be able to attest that such internal controls are effective when they are required to do so.
If we fail to remediate this material weakness and maintain an effective system of disclosure controls or internal control
over financial reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or
late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC
11
rules and regulations. Any of these could result in delisting actions by the NASDAQ Stock Market, investigation and sanctions
by regulatory authorities, and adversely affect our business and the trading price of our common stock.
We experienced additional risks and costs as a result of the delayed filing of this Form 10-K.
As a result of the circumstances giving rise to this delayed filing of this Form 10-K we experienced additional risks and
costs. The related investigation and audit was time-consuming, required us to incur significant incremental expenses and affected
management’s attention and resources. Further, the measures to strengthen internal controls being implemented continued to
require and will likely require in the future greater management time and company resources to implement and monitor. As a
result of our delayed filing of this Form 10-K, we will be ineligible to register our securities on Form S-3 for sale by us or resale
by others until we have timely filed all periodic reports under the Securities Exchange Act of 1934 for one year. The inability to
use Form S-3 could adversely affect our ability to raise capital or complete acquisitions of other companies during this period.
In addition, although we have now filed this Form 10-K, our failure to file it in a timely manner is a violation of the Securities
Exchange Act of 1934 and may lead to further investigation and scrutiny by the SEC, which such investigation, and any results
thereof, would require management time and company resources and could adversely affect our business and the trading price
of our common stock.
Failure or inadequacy of our information technology infrastructure or software could adversely affect our day-to-day
operations and decision-making processes and have an adverse effect on our performance.
We depend on accurate and timely information and numerical data from key software applications to aid our day-to-day
business, financial reporting and decision-making and, in many cases, proprietary and custom-designed software is necessary to
operate our business. We are upgrading our disaster recovery procedures for our critical systems. However, any disruption caused
by the failure of these systems, the underlying equipment, or communication networks could delay or otherwise adversely impact
our day-to-day business and decision making, could make it impossible for us to operate critical equipment, and could have an
adverse effect on our performance, if our disaster recovery plans do not mitigate the disruption. Disruptions could be caused by
a variety of factors, such as catastrophic events or weather, power outages, or cyber-attacks on our systems by outside parties.
We may experience difficulties fully implementing our enterprise resource planning systems.
We have been engaged in a project to upgrade our enterprise resource planning (“ERP”) systems. Our ERP systems are
critical to our ability to accurately maintain books and records, record transactions, provide important information to our
management and prepare our financial statements. The implementation of the new ERP systems has required, and will continue
to require, the investment of significant financial and human resources. In addition, we may not be able to successfully complete
the full implementation of the ERP systems without experiencing difficulties. Any disruptions, delays or deficiencies in the
design and implementation of the new ERP systems could adversely affect our ability to process orders, ship products, provide
services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.
Attractive acquisition opportunities may not be available to us in the future.
We will consider the acquisition of other businesses. However, we may not have the opportunity to make suitable
acquisitions on favorable terms in the future, which could negatively impact the growth of our business. In order to pursue such
opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. We
expect that our competitors, many of which have significantly greater resources than we do, will compete with us to acquire
compatible businesses. This competition could increase prices for acquisitions that we would likely pursue.
With respect to acquisitions we have completed or may seek to consummate in the future, we have and will incur a variety of
costs, and may never realize the anticipated benefits of the acquisitions due in part to difficulties integrating the businesses,
operations and product lines.
Our business strategy includes the acquisition of businesses, technologies, services or products that we believe are a
strategic fit with our business. In October 2014, we completed the acquisition of two privately held life science companies: Multi
Channel Systems MCS GmbH, a German company with limited liability headquartered in Reutlingen, Germany (“MCS”) and
Triangle BioSystems, Inc., a Delaware corporation based in Durham, North Carolina (“TBSI”). In January 2015, we completed
the acquisition of all of the operations of HEKA Electronik, a privately held biomedical instrumentation and software business
with headquarters in Lambrecht, Germany (“HEKA”). With respect to these recent acquisitions or if we undertake any future
acquisition, the process of integrating the acquired business, technology, service or product may result in unforeseen operating
difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected
or at all. Such transactions are inherently risky, and any such recent or future acquisitions could reduce stockholders’ ownership,
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cause us to incur debt, expose us to future liabilities and result in amortization expenses related to intangible assets with definite
lives, which may adversely impact our ability to undertake future acquisitions on substantially similar terms. We may also incur
significant expenditures in anticipation of an acquisition that is never realized.
Our ability to achieve the benefits of acquisitions depends in part on the integration and leveraging of technology,
operations, sales and marketing channels and personnel. The integration process is a complex, time-consuming and expensive
process and may disrupt our business if not completed in a timely and efficient manner. We may have difficulty successfully
integrating acquired businesses, and their domestic and foreign operations or product lines, and as a result, we may not realize
any of the anticipated benefits of the acquisitions we make. We cannot assure that our growth rate will equal the growth rates
that have been experienced by us and these and other acquired companies, respectively, operating as separate companies in the
past.
Customer, vendor and employee uncertainty about the effects of any of our acquisitions could harm us.
We and the customers of any company we acquire, including MCS, TBSI and HEKA and others in the future, may, in
response to the consummation of the acquisition, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by customers could adversely affect our business. Similarly, employees of acquired companies may experience
uncertainty about their future role until or after we execute our post-acquisition strategies. This may adversely affect our ability
to attract and retain key management, sales, marketing and technical personnel following an acquisition.
Our inability to effectively sell the NanoVue, SimpliNano and other spectrophotometer products following the transition from
GE Healthcare would have an adverse effect on our revenues and performance.
Since the 1970s and prior to January 1, 2016, we, through our Biochrom subsidiary, manufactured spectrophotometers sold
under the GE Healthcare brand, including the NanoVue and SimpliNano branded spectrophotometers. Effective as of January 1,
2016, GE Healthcare discontinued its sale of the branded spectrophotometers and certain related products. As of January 1, 2016,
we are selling and servicing these spectrophotometer products. Our inability to effectively sell such spectrophotometer products
and to otherwise eliminate the impact of the loss of the related revenues attributable to the historical GE Healthcare sales, would
decrease our revenues and have an adverse effect on our performance.
We may be the subject of lawsuits from either an acquiring company’s stockholders, an acquired company’s previous
stockholders, a divested company’s stockholders or our current stockholders.
We may be the subject of lawsuits from either an acquiring company’s stockholders, an acquired company’s previous
stockholders, a divested company’s stockholders or our current stockholders. Such lawsuits could result from the actions of the
acquisition or divestiture target prior to the date of the acquisition or divestiture, from the acquisition or divestiture transaction
itself or from actions after the acquisition or divestiture. Defending potential lawsuits could cost us significant expense and
detract management’s attention from the operation of the business. Additionally, these lawsuits could result in the cancellation
of or the inability to renew certain insurance coverage that would be necessary to protect our assets.
We may incur additional restructuring costs or not realize the expected benefits of our initiatives to reduce operating expenses
to date and in the future.
In 2015, we initiated certain plans to relocate and consolidate the operations of our Coulbourn facility and our HEKA
Canada facility to our headquarters in Holliston, MA and our HEKA Germany facility, respectively. We also initiated a plan in
October of 2015 to eliminate certain positions made redundant as a result of our facility consolidations, as well as a realignment
of our commercial team. In addition to these actions, we may seek to further eliminate certain inefficiencies in our corporate
structure in the future. We may not be able to implement all of the actions that we intend to take in the restructuring of our
operations and we may not be able to fully realize the expected benefits from such realignment and restructuring plans or other
similar restructurings in the future. In addition, we may incur additional restructuring costs in implementing such realignment
and restructuring plans or other similar future plans in excess of our expectations. The implementation of our restructuring efforts,
including the reduction of our workforce, may not improve our operational and cost structure or result in greater efficiency of
our organization; and we may not be able to support sustainable revenue growth and profitability following such restructurings.
The failure of any banking institution in which we deposit our funds or the failure of such banking institution to provide
services could have an adverse effect on our results of operations, financial condition or access to borrowings.
We deposit our cash and cash equivalents with a number of financial institutions around the world. Should any of these
financial institutions fail or otherwise be unable to timely perform requested services, we would likely have a limited ability to
quickly access our cash deposited with such institutions. If we are unable to quickly access such funds, we may need to increase
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our use of our existing credit lines or access more expensive credit, if available. If we are unable to access some or all of our cash
on deposit, either temporarily or permanently, or if we access existing or additional credit or are unable to access additional
credit, it could have a negative impact on our operations, including our reported net income, our financial position, or both.
We have substantial debt and other financial obligations and we may incur even more debt.
We have substantial debt and other financial obligations and significant unused borrowing capacity. On March 29, 2013,
we entered into a Second Amended and Restated Revolving Credit Agreement with Bank of America, as agent, and Bank of
America and Brown Brothers Harriman & Co as lenders (as amended, the “Credit Agreement”). As of December 31, 2015, we
had borrowings of $18.9 million under the Credit Agreement. The Credit Agreement includes covenants relating to income, debt
coverage and cash flow and minimum working capital requirements. The Credit Agreement also contains limitations on our
ability to incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes and/or
other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. If we are
not in compliance with certain of these covenants, in addition to other actions the creditor may require, the amounts drawn on
the Credit Agreement may become immediately due and payable. This immediate payment may negatively impact our financial
condition.
We have pledged substantially all of our assets (including the assets of our restricted subsidiaries) to secure our
indebtedness. Our Credit Agreement and related obligations:
(cid:120) Require us to dedicate significant cash flow to the payment of principal and interest on our debt, which reduces the
funds we have available for other purposes;
(cid:120) May limit our flexibility in planning for or reacting to changes in our business and market conditions or funding our
strategic growth plan;
(cid:120)
Impose on us additional financial and operational restrictions;
(cid:120) Expose us to interest rate risk since a portion of our debt obligations is at variable rates (which is mitigated to a certain
extent, by interest rate hedging transactions we entered into in connection with our Credit Agreement); and
(cid:120) Restrict our ability to fund certain acquisitions.
In addition, investors may be apprehensive about investing in companies such as ours that carry a substantial amount of
leverage on their balance sheets, and this apprehension may adversely affect the price of our common stock.
Failure to comply with the financial covenants, or any other non-financial or restrictive covenant, could create a default
under our Credit Agreement. Upon a default, our lenders could accelerate the indebtedness under the Credit Agreement, foreclose
against their collateral or seek other remedies, which would jeopardize our ability to continue our current operations. We may be
required to amend our Credit Agreement, refinance all or part of our existing debt, sell assets, incur additional indebtedness or
raise equity. Further, based upon our actual performance levels, our covenants relating to income, debt coverage and cash flow
and minimum working capital requirements could limit our ability to incur additional debt, which could hinder our ability to
execute our current business strategy.
Our ability to make scheduled payments on our debt and other financial obligations and comply with financial covenants
depends on our financial and operating performance. Our financial and operating performance will continue to be subject to
prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.
Failure to raise additional capital or generate the significant capital necessary to implement our acquisition strategy, expand
our operations and invest in new products could reduce our ability to compete and result in less revenues.
We anticipate that our financial resources, which include available cash, cash generated from operations, and debt and
equity capacity, will be sufficient to finance operations and capital expenditures for at least the next twelve months. However,
this expectation is premised on the current operating plan, which may change as a result of many factors, including market
acceptance of new products and future opportunities with collaborators. Consequently, we may need additional funding sooner
than anticipated. In addition, our Credit Agreement may not be sufficient to fund our acquisition strategy. In such case, our
inability to raise sufficient capital on favorable terms and in a timely manner (if at all) could seriously harm our business, product
development, and acquisition efforts.
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If we raise additional funds through the sale of equity or convertible debt or equity-linked securities, existing percentages
of ownership in our common stock will be reduced. In addition, these transactions may dilute the value of our outstanding
common stock. We may issue securities that have rights, preferences and privileges senior to our common stock. If we raise
additional funds through collaborations or licensing arrangements, we may relinquish rights to certain of our technologies or
products, or grant licenses to third parties on terms that are unfavorable. In addition, our Credit Agreement contains limitations
on our ability to incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes
and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. If
future financing is not available or is not available on acceptable terms, we may have to alter our operations or change our
business strategy. We cannot assure you that the capital required to fund operations or our acquisition strategy will be available
in the future.
Our stock price has fluctuated in the past and could experience substantial declines in the future.
The market price of our common stock has experienced significant fluctuations and may become volatile and could decline
in the future, perhaps substantially, in response to various factors including, but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
volatility of the financial markets;
uncertainty regarding the prospects of the domestic and foreign economies;
technological innovations by competitors or in competing technologies;
revenues and operating results fluctuating or failing to meet the expectations of management, securities analysts, or
investors in any quarter;
comments of securities analysts and mistakes by or misinterpretation of comments from analysts, downward revisions
in securities analysts’ estimates or management guidance;
investment banks and securities analysts becoming subject to lawsuits that may adversely affect the perception of the
market;
conditions or trends in the biotechnology and pharmaceutical industries;
announcements of significant acquisitions or financings or strategic partnerships;
non-compliance with the internal control standards pursuant to the Sarbanes-Oxley Act of 2002; and
a decrease in the demand for our common stock.
In addition, public stock markets have experienced extreme price and trading volatility. The stock market and the
NASDAQ Global Market in general, and the biotechnology industry and small cap markets in particular, have experienced
significant price and volume fluctuations that at times may have been unrelated or disproportionate to the operating performance
of those companies. These broad market and industry factors may further harm the market price of our common stock, regardless
of our operating performance. In the past, securities class action litigation has often been instituted following periods of volatility
in the market price of a company’s securities. A securities class action suit against us could result in substantial costs, potential
liabilities and the diversion of management’s attention and resources.
If our spin-off of Harvard Apparatus Regenerative Technology, Inc., now known as Biostage, together with certain related
transactions, does not qualify as a transaction that is generally tax-free for United States federal income tax purposes, we
could be subject to significant tax liability.
On June 28, 2013, we received a Supplemental Ruling to the Private Letter Ruling dated March 22, 2013, from the IRS to
the effect that, among other things, the spin-off of Biostage will qualify as a transaction that is tax-free for United States federal
income tax purposes under Section 355 and 368(a)(1)(D) of the Internal Revenue Code continuing in effect. The private letter
and supplemental rulings and the tax opinion that we received from Burns & Levinson LLP, special counsel to Harvard
Bioscience, Inc. rely on certain representations, assumptions and undertakings, including those relating to the past and future
conduct of our business and Biostage’s business, and neither the private letter and supplemental rulings nor the opinion would
be valid if such representations, assumptions and undertakings were incorrect. Moreover, the private letter and supplemental
15
rulings do not address all the issues that are relevant to determining whether the spin-off distribution will qualify for tax-free
treatment. Notwithstanding the private letter and supplemental rulings and opinion, the IRS could determine the spin-off
distribution should be treated as a taxable transaction for United States federal income tax purposes if, among other reasons, it
determines any of the representations, assumptions or undertakings that were included in the request for the private letter and
supplemental rulings are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by
the IRS ruling.
If the spin-off distribution fails to qualify for tax-free treatment, in general, we would be subject to tax as if we had sold
Biostage’s common stock in a taxable sale for its fair market value, and stockholders who receive shares of Biostage’s common
stock in the spin-off distribution would be subject to tax as if they had received a taxable distribution equal to the fair market
value of such shares.
To the extent we do not structure certain corporate transactions in compliance with the requirements of certain “safe harbor”
provision of the internal revenue code, the tax rules applicable to a tax-free spin-off may limit our ability to engage in certain
corporate transactions or raise equity capital beyond certain thresholds for a period of time after the spin-off of Biostage.
Current United States federal income tax law creates a presumption that our spin-off of Biostage would be taxable to us,
but not our stockholders, if such spin-off is part of a “plan or series of related transactions” pursuant to which one or more persons
acquire directly or indirectly, stock representing a 50% or greater interest (by vote or value) in us or Biostage. Although
acquisitions that occur during the four-year period that begins two years before the date of the spin-off are presumed to occur
pursuant to a plan or series of related transactions, the United States Treasury regulations provide several “safe harbors” for
acquisitions that would not be considered to be part of such a plan. Such regulations generally provide that whether an acquisition
and a spin-off are part of a plan is determined based on all of the facts and circumstances, including, but not limited to, specific
factors described in the United States Treasury regulations.
With respect to the businesses, acquisitions and certain other corporate transactions we entered into during the two year
period following the spin-off, we intend such transactions to comply with the safe harbors provided by the United States Treasury
regulations, however, the presumption that acquisitions will be part of a “plan or series of related transactions” may have limited
our ability during the two-year period following the spin-off to enter into certain transactions that may have been advantageous
to us and our stockholders, particularly, issuing equity securities to satisfy financing needs, repurchasing equity securities,
disposing of certain assets, engaging in mergers and acquisitions, and, under certain circumstances, acquiring businesses or assets
with equity securities or agreeing to be acquired.
To preserve the tax-free treatment of the spin-off to us and our stockholders, under the tax matters agreement that we
entered into with Biostage in connection with the spin-off, we are prohibited from taking or failing to take (or permitting any of
our subsidiaries, other than Biostage and its subsidiaries, to take or fail to take) any action where such action or failure to act
would prevent the tax-free nature of the spin-off or be inconsistent with any material, information, covenant or representation
that relates to facts or matters related to Harvard Bioscience (or any of our subsidiaries, other than Biostage and its subsidiaries)
or our business or within our control and is contained in any representation letter related to the private letter ruling, supplemental
private letter ruling or tax opinion (or any other supplemental private letter ruling or tax opinion that may be necessary) mentioned
above. These restrictions may have limited our ability to pursue strategic transactions of a certain magnitude that involved the
issuance or acquisition of our stock or engaged in new businesses or other transactions that might have increased the value of
our business. These restrictions may also have limited our ability to raise significant amounts of cash through the issuance of
stock, especially if our stock price were to suffer substantial declines, or through the sale of certain of our assets.
Third parties may seek to hold us responsible for Biostage’s liabilities, including liabilities that Biostage has assumed from
us.
Third parties may seek to hold us responsible for Biostage’s liabilities, including any of the liabilities that Biostage agreed
to retain or assume in connection with the separation of the Biostage business from our businesses, and related spin-off
distribution. Pursuant to our agreements with Biostage, Biostage has agreed to indemnify us for claims and losses relating to
certain liabilities that it has assumed from us, including liabilities in connection with the sale of Biostage’s products, intellectually
property infringement and other liabilities related to the operation of Biostage’s business. However, if those liabilities are
significant and we are ultimately held liable for them, we cannot assure you that Biostage will have the ability to satisfy its
obligations to us. If Biostage is unable to satisfy its obligations under its indemnity to us, we may have to satisfy these obligations,
which could have an adverse impact on our financial condition, results of operations or cash flows.
16
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
Under accounting principles generally accepted in the United States, we review our goodwill and intangible assets for
impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is also
required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that
the carrying value of our goodwill or other intangible assets may not be recoverable include a decline in our stock price and
market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant
charge to earnings in our financial statements during the period in which any impairment of our goodwill or other intangible
assets is determined, which could adversely impact our results of operations.
Accounting for goodwill, other intangible assets and long-lived assets may have an adverse effect on us.
We assess the recoverability of identifiable intangibles with finite lives and other long-lived assets, such as property, plant
and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASU”) 360, “Property, Plant and Equipment”. In accordance with FASB ASU 350, “Intangibles-Goodwill and
Other”, goodwill and intangible assets with indefinite lives from acquisitions are evaluated annually, or more frequently, if events
or circumstances indicate there may be an impairment, to determine whether any portion of the remaining balance of goodwill
and indefinite lived intangibles may not be recoverable. If it is determined in the future that a portion of our goodwill and other
intangible assets is impaired, we will be required to write off that portion of the asset according to the methods defined by FASB
ASU 360 and FASB ASU 350, which could have an adverse effect on net income for the period in which the write-off occurs.
At December 31, 2015, we had goodwill and intangible assets of $62.5 million, or 49%, of our total assets and we concluded that
none of our goodwill or other intangible assets was impaired.
If our accounting estimates are not correct, our financial results could be adversely affected.
Management judgment and estimates are required in the application of our Critical Accounting Policies. We discuss these
estimates in the subsection entitled critical accounting policies beginning on page 24 in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations in this Annual Report. If our estimates are incorrect, our future
financial operating results and financial condition could be adversely affected.
If we fail to retain key personnel and hire, train and retain qualified employees, we may not be able to compete effectively,
which could result in reduced revenue or increased costs.
Our success is highly dependent on the continued services of key management, technical and scientific personnel. Our
management and other employees may voluntarily terminate their employment at any time upon short notice. The loss of the
services of any member of the senior management team, including the Chief Executive Officer, Jeffrey A. Duchemin; the Chief
Financial Officer, Robert E. Gagnon; the Vice President, Commercial Operations, Yong Sun; or any of the managerial, technical
or scientific staff may significantly delay or prevent the achievement of product development, our growth strategies and other
business objectives. Our future success will also depend on our ability to identify, recruit and retain additional qualified scientific,
technical and managerial personnel. We operate in several geographic locations where labor markets are particularly competitive,
including Boston, Massachusetts, the New York metropolitan area, London and Cambridge, England, and Germany, where
demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for qualified
personnel is intense, particularly in the areas of general management, finance, information technology, engineering and science,
and the process of hiring suitably qualified personnel is often lengthy and expensive, and may become more expensive in the
future. If we are unable to hire and retain a sufficient number of qualified employees, our ability to conduct and expand our
business could be seriously reduced.
If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our
ability to compete in our markets.
Our continued success will depend in significant part on our ability to obtain and maintain meaningful patent protection
for certain of our products throughout the world. Patent law relating to the scope of claims in the technology fields in which we
operate is still evolving. The degree of future protection for our proprietary rights is uncertain. We also own numerous United
States registered trademarks and trade names and have applications for the registration of trademarks and trade names pending.
We rely on patents to protect a significant part of our intellectual property and to enhance our competitive position. However,
our presently pending or future patent applications may not be accepted and patents might not be issued, and any patent previously
issued to us may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents which have
been issued or which may be issued to us in the future may not be sufficiently broad to prevent third parties from producing
competing products similar to our products. In addition, the laws of various foreign countries in which we compete may not
17
protect our intellectual property to the same extent, as do the laws of the United States. If we fail to obtain adequate patent
protection for our proprietary technology, our ability to be commercially competitive could be materially impaired.
In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary
information. To maintain the confidentiality of trade-secrets and proprietary information, we generally seek to enter into
confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship.
However, we may not be able to obtain these agreements in all circumstances in part due to local regulations. In the event of
unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection
for our trade-secrets or other confidential information. In addition, adequate remedies may not exist in the event of unauthorized
use or disclosure of this information. The loss or exposure of our trade secrets and other proprietary information would impair
our competitive advantages and could have an adverse effect on our operating results, financial condition and future growth
prospects.
The manufacture, sale and use of products and services may expose us to product liability claims for which we could have
substantial liability.
We face an inherent business risk of exposure to product liability claims if our products, services or product candidates,
including without limitation, any of our life science research tools are alleged or found to have caused injury, damage or loss.
We may in the future be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms
or claims of this nature may be excluded from coverage under the terms of any insurance policy that we can obtain. If we are
unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage,
then our business could be adversely impacted.
We may be involved in lawsuits to protect or enforce our patents that would be expensive and time-consuming.
In order to protect or enforce our patent rights, we may initiate patent litigation against third parties. We may also become
subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority
of inventions. Several of our products are based on patents that are closely surrounded by patents held by competitors or potential
competitors. As a result, we believe there is a greater likelihood of a patent dispute than would be expected if our patents were
not closely surrounded by other patents. The defense and prosecution, if necessary, of intellectual property suits, interference
proceedings and related legal and administrative proceedings would be costly and divert our technical and management personnel
from their normal responsibilities. We may not prevail in any of these suits should they occur. An adverse determination of any
litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our
patent applications at risk of being rejected and no patents being issued.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For
example, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments in the litigation. Securities analysts or investors may perceive these announcements
to be negative, which could cause the market price of our stock to decline.
Our success will depend partly on our ability to operate without infringing on or misappropriating the intellectual property
rights of others.
We may be sued for infringing on the intellectual property rights of others, including the patent rights, trademarks and
trade names of third parties. Intellectual property litigation is costly and the outcome is uncertain. If we do not prevail in any
intellectual property litigation, in addition to any damages we might have to pay, we could be required to stop the infringing
activity, or obtain a license to or design around the intellectual property in question. If we are unable to obtain a required license
on acceptable terms, or are unable to design around any third party patent, we may be unable to sell some of our products and
services, which could result in reduced revenue.
Ethical concerns surrounding the use of our products and misunderstanding of the nature of our business could adversely
affect our ability to develop and sell our existing products and new products.
Some of our products may be used in areas of research usage involving animal research and other techniques presently
being explored in the life science industry. These techniques have drawn negative attention in the public forum. Government
authorities may regulate or prohibit any of these activities. Additionally, the public may disfavor or reject these activities.
18
Rising commodity and precious metals costs could adversely impact our profitability.
Raw material commodities such as resins, and precious metal commodities such as platinum are subject to wide price
variations. Increases in the costs of these commodities and the costs of energy, transportation and other necessary services may
adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise
achieve cost efficiencies such as in manufacturing and distribution.
New regulations related to conflict minerals may force us to incur additional expenses and otherwise adversely impact our
business.
The SEC has promulgated final rules mandated by the Dodd-Frank Act regarding disclosure of the use of tin, tantalum,
tungsten and gold, known as conflict minerals, in products manufactured by public companies. These new rules require ongoing
due diligence to determine whether such minerals originated from the Democratic Republic of Congo (the DRC) or an adjoining
country and whether such minerals helped finance the armed conflict in the DRC. Reporting obligations for the rule began on
May 31, 2014 and are required annually thereafter. There will be costs associated with complying with these disclosure
requirements, including costs to determine the origin of conflict minerals in our products. The implementation of these rules and
their effect on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials
used in our products. As a result, we may also incur costs with respect to potential changes to products, processes or sources of
supply. We may face disqualification as a supplier for customers and reputational challenges if the due diligence procedures we
implement do not enable us to verify the origins for all conflict minerals used in our products, including that such minerals did
not originate from any of the covered conflict countries. Accordingly, the implementation of these rules could have an adverse
effect on our business, results of operations and/or financial condition.
Provisions of Delaware law, of our charter and bylaws and our Shareholder Rights Plan may make a takeover more difficult,
which could cause our stock price to decline.
Provisions in our certificate of incorporation and bylaws and in the Delaware corporate law may make it difficult and
expensive for a third party to pursue a tender offer, change in control or takeover attempt, which is opposed by management and
the board of directors. Public stockholders who might desire to participate in such a transaction may not have an opportunity to
do so. In February 2008, our Board of Directors adopted a Shareholder Rights Plan that could make it more difficult for a third
party to acquire, or could discourage a third party from acquiring, the Company or a large block of our common stock. A third
party that acquires 20% or more of our common stock (an “Acquiring Person”) could suffer substantial dilution of its ownership
interest under the terms of the Shareholder Rights Plan through the issuance of common stock to all shareholders other than the
Acquiring Person. We also have a staggered board of directors that makes it difficult for stockholders to change the composition
of the board of directors in any one year. These anti-takeover provisions could substantially impede the ability of public
stockholders to change our management and board of directors. Such provisions may also limit the price that investors might be
willing to pay for shares of our common stock in the future.
An active trading market for our common stock may not be sustained.
Although our common stock is quoted on the NASDAQ Global Market, an active trading market for the shares may not
be sustained. This could negatively affect the price for our common stock, including investors’ ability to buy or sell our common
stock and the listing thereof.
Any issuance of preferred stock in the future may dilute the rights of our common stockholders.
Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price,
privileges and other terms of these shares. The board of directors may exercise this authority without any further approval of
stockholders. The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred
stock.
Cash dividends will not likely be paid on our common stock.
Currently, we intend to retain all of our earnings to finance the expansion and development of our business and do not
anticipate paying any cash dividends to holders of our common stock in the near future. As a result, capital appreciation, if any,
of our common stock will be a stockholder’s sole source of gain for the near future.
Item 1B. Unresolved Staff Comments.
None.
19
Item 2.
Properties.
Our twelve principal facilities incorporate manufacturing, research and development, sales and marketing, and
administration functions. Our facilities consist of:
• a leased 83,123 square foot facility in Holliston, Massachusetts, which includes our corporate headquarters,
• a leased 36,144 square foot facility in Charlotte, North Carolina,
• a leased 29,020 square foot facility in Richmond, California,
• a leased 22,900 square foot facility in Nordhausen, Germany,
• a leased 22,449 square foot facility in Reutlingen, Germany,
• a leased 20,853 square foot facility in Barcelona, Spain,
• a leased 12,031 square foot facility in March-Hugstetten, Germany,
• a leased 10,820 square foot facility in Cambourne, England,
• a leased 9,419 square foot facility in Lambrecht, Germany,
• a leased 7,500 square foot facility in Hamden, Connecticut,
• a leased 3,780 square foot facility in Durham, North Carolina, and
• a leased 3,229 square foot facility in Kista, Sweden.
We also lease additional facilities for sales and administrative support in Shanghai, China, Les Ulis, France, St. Augustin,
Germany, Lunenburg, Canada and Montreal, Canada.
We believe our current facilities are adequate for our needs for the foreseeable future.
Item 3.
Legal Proceedings.
From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business.
We are not currently a party to any such significant claims or proceedings.
Item 4.
Mine Safety Disclosures
Not Applicable.
20
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Price Range of Common Stock
Our common stock has been quoted on the NASDAQ Global Market since our initial public offering on December 7, 2000,
and currently trades under the symbol “HBIO.” The following table sets forth the range of the high and low sales prices per share
of our common stock as reported on the NASDAQ Global Market for the quarterly periods indicated.
Fiscal Year Ended December 31, 2015
First Quarter ................................................................................................................................. $
Second Quarter ............................................................................................................................. $
Third Quarter ................................................................................................................................ $
Fourth Quarter .............................................................................................................................. $
High
Low
5.82 $
6.70 $
5.63 $
4.06 $
5.02
5.15
3.74
2.87
Fiscal Year Ended December 31, 2014
First Quarter ................................................................................................................................. $
Second Quarter ............................................................................................................................. $
Third Quarter ................................................................................................................................ $
Fourth Quarter .............................................................................................................................. $
High
Low
4.88 $
4.74 $
4.90 $
5.67 $
4.10
3.73
4.09
4.14
On March 21, 2016, the closing sale price of our common stock on the NASDAQ Global Market was $2.77 per share.
There were 142 holders of record of our common stock as of March 21, 2016. We believe that the number of beneficial owners
of our common stock at that date was substantially greater.
Dividend Policy
We have never declared or paid cash dividends on our common stock in the past and do not intend to pay cash dividends
on our common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our
Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors our
Board of Directors deems relevant.
Stockholder Return Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the Exchange Act), or incorporated by reference into any filing of Harvard Bioscience under the Securities Act of
1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
The following graph provides a comparison of the cumulative total stockholder return on the Company’s common stock
from December 31, 2010 to December 31, 2015 with the cumulative return of the Russell 2000 Index and the Nasdaq
Biotechnology Index over the same period. The five-year cumulative return assumes an initial investment of $100 in the
Company’s common stock and in each index on December 31, 2010. The total return for the Company’s common stock and the
indices used assumes the reinvestment of all dividends. The table below reflects the stock prices as adjusted for the spin-off of
HART which was effected on November 1, 2013, for all periods presented.
21
12/10
12/11
12/12
12/13
12/14
12/15
Harvard Bioscience, Inc. ...............
Russell 2000 ...................................
NASDAQ Biotechnology ...............
100.00
100.00
100.00
94.85
95.82
113.92
107.35
111.49
153.97
152.04
154.78
263.29
183.42
162.35
348.49
112.25
155.18
369.06
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6.
Selected Financial Data
The financial data presented below have been derived from our audited consolidated financial statements. The selected
historical financial data presented below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.” and with our
previously filed Annual Reports on Form 10-K. The selected data in this section is not intended to replace the consolidated
financial statements. The information presented below is not necessarily indicative of the results of our future operations.
22
Statement of Operations Data:
Revenues ....................................................... $
Cost of revenues ............................................
Gross profit ...............................................
Operating expenses .......................................
Operating (loss) income ............................
Other expense, net .....................................
(Loss) income from continuing operations
before income taxes ...............................
Income tax expense (benefit) (1) ...................
(Loss) income from continuing operations
Discontinued operations (2):
Loss from discontinued operations, net of
tax ..........................................................
Net (loss) income ...................................... $
(Loss) earnings per share:
Basic (loss) earnings per common share
from continuing operations ................... $
Discontinued operations ............................
Basic (loss) earnings per common share ... $
Diluted (loss) earnings per common share
from continuing operations ................... $
Discontinued operations ............................
Diluted (loss) earnings per common share $
Weighted average common shares:
2015
108,664 $
59,941
48,723
50,436
(1,713 )
(1,895 )
(3,608 )
15,431
(19,039 )
For The Year Ended December 31,
2012
2013
2014
(in thousands, except per share data)
108,663 $
59,319
49,344
42,726
6,618
(2,201)
105,171 $
57,475
47,696
46,159
1,537
(1,102)
111,171 $
58,831
52,340
44,510
7,830
(938)
4,417
2,062
2,355
435
(288)
723
6,892
2,398
4,494
2011
108,864
58,672
50,192
41,787
8,405
(1,537)
6,868
1,579
5,289
-
(19,039 ) $
-
2,355 $
(2,553)
(1,830) $
(2,124)
2,370 $
(1,477)
3,812
(0.57 ) $
-
(0.57 ) $
(0.57 ) $
-
(0.57 ) $
0.07 $
-
0.07 $
0.02 $
(0.08)
(0.06) $
0.16 $
(0.07)
0.09 $
0.07 $
-
0.07 $
0.02 $
(0.08)
(0.06) $
0.15 $
(0.07)
0.08 $
0.19
(0.05)
0.14
0.18
(0.05)
0.13
Basic ..........................................................
Diluted .......................................................
33,593
33,593
32,171
33,237
30,384
31,914
28,799
29,793
28,451
29,819
2015
2014
As of December 31,
2013
(in thousands)
2012
2011
Balance Sheet Data:
Cash and cash equivalents ............................. $
Working capital .............................................
Total assets ....................................................
Long-term debt, net of current portion ..........
Stockholders’ equity ......................................
6,744 $
31,140
120,217
16,450
77,598
14,134 $
38,964
135,916
16,450
95,468
25,771 $
44,665
135,460
19,750
94,485
20,681 $
49,071
133,484
12,950
104,213
17,916
48,004
126,634
16,300
95,499
(1) Income tax expense for the year ended December 31, 2015 is primarily the result of the recognition of a valuation allowance
on U.S. deferred tax assets.
(2) Discontinued operations include:
On September 30, 2008, we completed the sale of assets of our Union Biometrica Division to UBIO Acquisition Company.
The purchase price paid by UBIO Acquisition Company included an earn-out based on the revenue generated by the
acquired business over a five-year post-transaction period. Discontinued operations include a gain on disposal related to the
earn-out, net of tax, of $0.3 million in 2013.
On November 1, 2013, the spin-off of our RMD business from our Company was completed. Through the spin-off date the
historical operations of RMD were reported as continuing operations in our consolidated statements of operations. Following
the spin-off, and reported herein, the historical operations of RMD were restated and presented as discontinued operations
in our consolidated statements of operations presented. Discontinued operations include the results of the RMD business
except for certain corporate overhead costs and other allocations, which remain in continuing operations. The costs incurred
to separate and spin-off the RMD business remain in continuing operations and have been classified and reported as
23
transaction costs, within operating expenses, on our consolidated statements of operations. Discontinued operations include
losses from operations of the RMD business, net of tax, for 2013 of $2.8 million.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contains statements that are not statements of historical fact and are forward-looking
statements within the meaning of federal securities laws. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. These statements reflect our current views
with respect to future events and are based on assumptions and subject to risks and uncertainties. Factors that may cause our
actual results to differ materially from those in the forward-looking statements include those factors described in “Item 1A. Risk
Factors” beginning on page 8 of this Annual Report on Form 10-K. You should carefully review all of these factors, as well as
the comprehensive discussion of forward-looking statements on page 1 of this Annual Report on Form 10-K.
Overview
Harvard Bioscience, Inc., a Delaware corporation, is a global developer, manufacturer and marketer of a broad range of
scientific instruments, systems and lab consumables used to advance life science for basic research, drug discovery, clinical and
environmental testing. Our products are sold to thousands of researchers in over 100 countries through our global sales
organization, websites, catalogs, and through distributors including Thermo Fisher Scientific Inc., VWR, GE Healthcare and
other specialized distributors. We have sales and manufacturing operations in the United States, the United Kingdom, Germany,
Sweden, Spain, France, Canada, and China.
From 2009 through November 1, 2013, our operations included two main businesses, the Life Science Research Tools
business and the Regenerative Medicine Device business. In 2013, we formed and consummated the spin-off of Harvard
Apparatus Regenerative Technology, Inc. to our existing shareholders by means of a distribution of the shares we owned in
Harvard Apparatus Regenerative Technology, Inc. Harvard Apparatus Regenerative Technology, Inc. changed its name to
Biostage, Inc. in April 2016 and is referred to herein as Biostage.
At the end of 2013 we began a multiple year restructuring program to reduce costs, align global functions, consolidate
facilities, and reinvest in key areas such as sales and IT. As part of the reinvestment, we initiated a multiple year plan in 2014 to
invest in and implement a new global enterprise resource planning platform. Additionally, during 2014, as part of the restructuring
program, we initiated plans to relocate and consolidate the distribution, finance and marketing operations of our Denville
Scientific, Inc. subsidiary (“Denville Scientific”) to Charlotte, North Carolina and our Holliston, MA headquarters, and relocate
the manufacturing operations of our Biochrom Ltd. subsidiary (“Biochrom”) to our Holliston, MA headquarters. During the first
quarter of 2015, we initiated plans to relocate the operations of our subsidiary, Coulbourn Instruments, LLC (“Coulbourn”), to
our Holliston, MA headquarters. During the second quarter of 2015, we initiated plans to relocate the operations of HEKA
Electronics Incorporated, our HEKA Canada subsidiary (“HEKA Canada”), to HEKA Electronik Dr. Schulze GmbH, our HEKA
Germany subsidiary (“HEKA Germany”). Also during the second quarter of 2015, and simultaneously with the HEKA Canada
move, we initiated plans to relocate the operations of HEKA Instruments Incorporated, our United States HEKA subsidiary
(“HEKA U.S.”, and together with HEKA Canada and HEKA Germany, “HEKA”), to our Holliston, MA headquarters. As of
December 31, 2015, these relocation plans have been completed. Additionally, we committed to a restructuring plan on October
27, 2015, which included eliminating certain redundancies as a result of our site consolidations, as well as a realignment of our
commercial sales team. We believe the overall restructuring program positions Harvard Bioscience to stabilize, focus on, and
grow the life science business going forward.
During the third quarter of 2015, GE Healthcare informed us of its decision to discontinue the sale of its spectrophotometer
products by the end of 2015. This line of products includes the GE brands NanoVue and SimpliNano, which we manufacture
and distributed through GE. As of January 1, 2016, we have been selling the NanoVue and SimpliNano spectrophotometers
through our own direct sales force and through distribution partners, as well as servicing previously sold products in the field,
yielding a new potential source of revenue and higher gross margins. As a result of GE’s decision, there were lower sales of GE
branded spectrophotometers of approximately $2.1 million during the year ended December 31, 2015. We expect to resume
revenue from the sale of these spectrophotometers beginning in 2016 and to see potential benefits from an expanded customer
base for many of our other products.
24
Our Strategy
Our vision is to be a world leading life science company that excels in meeting the needs of our customers by providing a
wide breath of innovative products and solutions, while providing exemplary customer service. Our business strategy is to grow
our top-line and bottom-line, and build shareholder value through a commitment to:
•
•
•
•
commercial excellence and organic growth;
new product development;
strategic acquisitions; and
operational efficiencies.
In the table below, we provide an overview of selected operating metrics.
2015
% of
Revenues
% of
Revenues
2014
(dollars in thousands)
2013
% of
Revenues
Revenues .................................................... $ 108,664
59,941
Cost of revenues .........................................
20,577
Sales and marketing expenses ....................
19,832
General and administrative expenses .........
6,420
Research and development expenses .........
Restructuring charges .................................
788
2,819
Amortization of intangible assets ...............
-
Biostage transaction costs ..........................
-
Gain on sale of assets .................................
$ 108,663
59,319
18,225
16,826
4,880
1,027
2,578
-
810
55.2%
18.9%
18.3%
5.9%
0.7%
2.6%
0.0%
0.0%
$ 105,171
57,475
17,330
17,887
4,154
2,150
2,590
2,048
-
54.6%
16.8%
15.5%
4.5%
0.9%
2.4%
0.0%
0.7%
54.6%
16.5%
17.0%
3.9%
2.0%
2.5%
1.9%
0.0%
Components of Operating Income
Revenues. We generate revenues by selling apparatus, instruments, devices and consumables through our distributors,
direct sales force, websites and catalogs. Our websites and catalogs serve as the primary sales tools for our Cell and Animal
Physiology product line. This product line includes both proprietary manufactured products and complementary products from
various suppliers. Our reputation as a leading producer in many of our manufactured products creates traffic to our website,
enables cross-selling and facilitates the introduction of new products. We have field sales teams in the U.S., Canada, the United
Kingdom, Germany, France, Spain and China. In those regions where we do not have a direct sales team, we use distributors.
Revenues from direct sales to end users represented approximately 63%, 58% and 57% of our revenues for the years ended
December 31, 2015, 2014 and 2013, respectively.
Products in our Molecular Separation and Analysis product line are generally sold by distributors, and are typically priced
in the range of $5,000-$15,000. They are mainly scientific instruments like spectrophotometers and plate readers that analyze
light to detect and quantify a wide range of molecular and cellular processes, or apparatus like gel electrophoresis units. We also
use distributors for both our catalog products and our higher priced products, for sales in locations where we do not have
subsidiaries or where we have existing distributors in place from acquired businesses. For the years ended December 31, 2015,
2014 and 2013, approximately 37%, 42% and 43% of our revenues, respectively, were derived from sales to distributors.
For the years ended December 31, 2015, 2014 and 2013, approximately 62%, 65% and 64% of our revenues, respectively,
were derived from products we manufacture, approximately 13%, 10% and 11%, respectively, were derived from complementary
products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular
experiment, and approximately 25%, for all years presented, were derived from distributed products sold under our brand names.
25
For the years ended December 31, 2015, 2014 and 2013, approximately 40%, 41% and 39% of our revenues, respectively,
were derived from sales made by our non-United States operations.
Changes in the relative proportion of our revenue sources between catalog or website sales, direct sales and distribution
sales are primarily the result of a different sales proportion of acquired companies and changes in geographic mix.
Cost of revenues. Cost of revenues includes material, labor and manufacturing overhead costs, obsolescence charges,
packaging costs, warranty costs, shipping costs and royalties. Our cost of revenues may vary over time based on the mix of
products sold. We sell products that we manufacture and products that we purchase from third parties. The products that we
purchase from third parties typically have a higher cost of revenues as a percent of revenues because the profit is effectively
shared with the original manufacturer. We anticipate that our manufactured products will continue to have a lower cost of
revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future.
Additionally, our cost of revenues as a percent of revenues will vary based on mix of direct to end user sales and distributor sales,
mix by product line and mix by geography.
Sales and marketing expenses. Sales and marketing expense consists primarily of salaries and related expenses for
personnel in sales, marketing and customer support functions. We also incur costs for travel, trade shows, demonstration
equipment, public relations and marketing materials, consisting primarily of the printing and distribution of our catalogs,
supplements and the maintenance of our websites. We may from time to time expand our marketing efforts by employing
additional technical marketing specialists in an effort to increase sales of selected categories of products. We may also from time
to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines.
General and administrative expenses. General and administrative expense consists primarily of salaries and other related
costs for personnel in executive, finance, accounting, information technology and human resource functions. Other costs include
professional fees for legal and accounting services, facility costs, investor relations, insurance and provision for doubtful
accounts.
Research and development expenses. Research and development expense consists primarily of salaries and related
expenses for personnel and spending to develop and enhance our products. Other research and development expense includes
fees for consultants and outside service providers, and material costs for prototype and test units. We expense research and
development costs as incurred. We believe that investment in product development is a competitive necessity and plan to continue
to make these investments in order to realize the potential of new technologies that we develop, license or acquire for existing
markets.
Restructuring charges. Restructuring charges consist of severance, other personnel-related charges and exit costs related
to plans to create organizational efficiencies and reduce operating expenses.
Biostage transaction costs. Biostage transaction costs consist of legal, accounting and other professional fees incurred to
facilitate the separation and spin-off of Biostage. The costs have been included as a component of operating expenses on our
consolidated statements of operations.
Stock-based compensation expenses. Stock-based compensation expense for the years ended December 31, 2015, 2014
and 2013 was $2.8 million, $2.2 million and $2.7 million, respectively. The stock-based compensation expense related to stock
options, restricted stock units, restricted stock units with a market condition and the employee stock purchase plan and was
recorded as a component of cost of revenues, sales and marketing expenses, general and administrative expenses, research and
development expenses and discontinued operations.
Currently, we intend to retain all of our earnings to finance the expansion and development of our business and do not
anticipate paying any cash dividends to holders of our common stock in the near future. As a result, capital appreciation, if any,
of our common stock will be a stockholder’s sole source of gain for the near future.
Bookings and Backlog
We monitor bookings and backlog as these are indicators of future revenues and business activity levels.
Bookings were $110.9 million and $109.9 million for the years ended December 31, 2015 and 2014, respectively.
Excluding the effects of currency translation, our bookings increased $5.2 million, or 4.7% from the year ended December 31,
2014. The increase in bookings was primarily the result of our acquisitions of MCS, TBSI and HEKA. Bookings were $109.9
million and $105.6 million for the years ended December 31, 2014 and 2013, respectively. Excluding the effects of currency
translation, our bookings increased $3.3 million, or 3.1% from the year ended December 31, 2013.
26
Our order backlog was approximately $9.0 million and $7.2 million as of December 31, 2015 and 2014, respectively.
Excluding the effects of currency translation, our backlog increased $2.2 million, or 31.0% from December 31, 2014. The
increase in backlog was primarily the result of the timing of customer orders and shipments. Our order backlog was approximately
$7.2 million and $5.1 million as of December 31, 2014 and 2013, respectively. Excluding the effects of currency translation, our
backlog increased $2.4 million, or 46.5% from December 31, 2013. The increase in backlog was primarily the result of our 2014
fourth quarter acquisitions of MCS and TBSI and the timing of customer orders and shipments. We include in backlog only those
orders for which we have received valid purchase orders. Purchase orders may be cancelled at any time prior to shipment. Our
backlog as of any particular date may not be representative of actual sales for any succeeding period.
Selected Results of Operations
Year Ended December 31, 2015 compared to Year Ended December 31, 2014
Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to
the United States dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations
on both a reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange
rates. We believe that disclosing this non-GAAP financial information provides investors with an enhanced understanding of the
underlying operations of the business. This non-GAAP financial information approximates information used by our management
to internally evaluate our operating results. The non-GAAP financial information provided below should be considered in
addition to, not as a substitute for, the financial information provided and presented in accordance with accounting principles
generally accepted in the United States, or GAAP.
Revenues
Revenues for the year ended December 31, 2015 were $108.7 million, and flat compared to revenues for the year ended
December 31, 2014.
Revenues contributed by our MCS, TBSI and HEKA acquisitions were offset by the negative impact of currency translation
and GE Healthcare discontinuing the sale of its spectrophotometer products, which amounted to approximately $4.0 million and
$2.1 million, respectively, in lower revenues during 2015. Excluding the impact of currency translation, revenues increased
approximately 3.7%.
Reconciliation of Changes In Revenues Compared to the Same Period of the Prior Year
For the Year Ended
December 31, 2015
Growth ..........................................................................................................................................................
Foreign exchange effect ................................................................................................................................
Net revenue growth .......................................................................................................................................
3.7%
-3.7%
0.0%
Cost of revenues
Cost of revenues were $59.9 million for the year ended December 31, 2015, an increase of $0.6 million, or 1.0%, compared
with $59.3 million for the year ended December 31, 2014. Gross profit margin as a percentage of revenues decreased to 44.8%
for the year ended December 31, 2015 compared with 45.4% for 2014. The decrease in gross profit margin was due primarily to
unfavorable currency translation and costs to relocate and consolidate certain facilities, partially offset by the contributions from
MCS, TBSI and HEKA.
27
Sales and marketing expenses
Sales and marketing expenses increased $2.4 million, or 12.9%, to $20.6 million for the year ended December 31, 2015
compared with $18.2 million for the year ended December 31, 2014. The increase was primarily due to our acquisitions and
higher payroll related costs, partially offset by favorable currency translation and the impact of our restructuring activities.
General and administrative expenses
General and administrative expenses were $19.8 million for the year ended December 31, 2015, an increase of $3.0 million,
or 17.9%, compared with $16.8 million for the year ended December 31, 2014. The increase was primarily due to our acquisitions,
costs to relocate and consolidate certain facilities and higher stock compensation expense, partially offset by favorable currency
translation, lower incentive bonus costs, and the impact of our restructuring activities.
Research and development expenses
Research and development expenses were $6.4 million for the year ended December 31, 2015, an increase of $1.5 million,
or 31.6%, compared with $4.9 million for the year ended December 31, 2014. The increase was primarily due to our acquisitions,
partially offset by favorable currency translation, lower incentive bonus costs, and the impact of our restructuring activities.
Restructuring
Restructuring charges were $0.8 million for year ended December 31, 2015 compared with $1.0 million for the year ended
December 31, 2014. Restructuring charges during the year ended December 31, 2014 included additional charges related to the
company-wide restructuring plan we implemented during the year ended December 31, 2013, as well as charges related to the
restructuring plan we commenced during the year ended December 31, 2014. The 2013 restructuring plan realigned global
operations and included a reduction of our workforce of approximately 13%, as well as the elimination of the position of Chief
Operating Officer. The 2014 restructuring plan realigned global operations and included actions to move the Biochrom
manufacturing and Denville Scientific distribution operations to Holliston, MA and Charlotte, NC, respectively.
Restructuring charges recorded during the year ended December 31, 2015 included additional charges related to the
restructuring plan we implemented during the year ended December 31, 2014, as described above, as well as charges related to
restructuring plans commenced during the year ended December 31, 2015. The 2015 restructuring plans included actions to move
the Coulbourn Instruments’ operations to Holliston, MA and the HEKA Canada operations to HEKA Germany, as well as
eliminating certain positions made redundant as a result of our site consolidations and a realignment of our commercial sales
team.
Amortization of intangible assets
Amortization of intangible asset expenses was $2.8 million for the year ended December 31, 2015 compared with $2.6
million for the year ended December 31, 2014.
Other expense, net
Other expense, net, was $1.9 million and $2.2 million for the years ended December 31, 2015 and 2014, respectively.
Included in other expense, net for the year ended December 31, 2015 was interest expense of $0.9 million and $1.2 million of
acquisition related costs, including due diligence and deal investigative activities. For the year ended December 31, 2014 other
expense, net included $1.0 million of interest expense and $1.1 million of acquisition related costs, including due diligence and
deal investigative activities. The decrease in other expense, net was primarily due to currency exchange rate fluctuations.
Currency exchange rate fluctuations included as a component of net (loss) income resulted in approximately $0.2 million in
currency gains during the year ended December 31, 2015, compared to $0.2 million in currency losses during the year ended
December 31, 2014.
Income taxes
Income tax expense was approximately $15.4 million and $2.1 million for the years ended December 31, 2015 and 2014,
respectively. The increase in income tax expense year over year was primarily attributable to the recognition of a valuation
allowance on U.S. deferred tax assets in 2015. During the year ended December 31, 2015, we determined that it was more likely
than not that our U.S. deferred tax assets would not be realized and therefore recorded a net increase to the valuation allowance
of $16.4 million to offset U.S. deferred tax assets net of deferred tax liabilities except for certain indefinite-lived intangible assets.
This decision was based on all available evidence.
28
Year Ended December 31, 2014 compared to Year Ended December 31, 2013
Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to
the United States dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations
on both a reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange
rates. We believe that disclosing this non-GAAP financial information provides investors with an enhanced understanding of the
underlying operations of the business. This non-GAAP financial information approximates information used by our management
to internally evaluate our operating results. The non-GAAP financial information provided below should be considered in
addition to, not as a substitute for, the financial information provided and presented in accordance with accounting principles
generally accepted in the United States, or GAAP.
Revenues
Revenues increased 3.3%, or $3.5 million, to $108.7 million for the year ended December 31, 2014 compared to revenues
of $105.2 million for the same period in 2013. Excluding the effects of currency translation, our revenues increased 2.4% from
the previous year. The increase was the result of revenues from the newly acquired MCS and TBSI and organic growth.
Reconciliation of Changes In Revenues Compared to the Same Period of the Prior Year
For the Year Ended
December 31, 2014
Growth ..........................................................................................................................................................
Foreign exchange effect ................................................................................................................................
Net revenue growth .......................................................................................................................................
2.4%
0.9%
3.3%
Cost of revenues
Cost of revenues increased $1.8 million, or 3.2%, to $59.3 million for the year ended December 31, 2014 compared with
$57.5 million for the year ended December 31, 2013. Gross profit margin as a percentage of revenues was 45.4% for both years
ended December 31, 2014 and 2013. Contributing factors in the year over year increase were currency translation, costs from
our fourth quarter acquisitions, as well as unpaid incentive bonus costs.
Sales and marketing expenses
Sales and marketing expenses increased $0.9 million, or 5.2%, to $18.2 million for the year ended December 31, 2014
compared with $17.3 million for the year ended December 31, 2014. The increase was primarily due to unpaid incentive bonus
costs, our fourth quarter acquisitions and unfavorable currency translation.
General and administrative expenses
General and administrative expenses decreased $1.1 million, or 5.9%, to $16.8 million for the year ended December 31,
2014 compared with $17.9 million for the year ended December 31, 2013. The decrease was primarily due to lower payroll
related costs and lower stock compensation expenses, partially offset by unpaid incentive bonus costs, our fourth quarter
acquisitions and unfavorable currency translation.
Research and development expenses
Research and development expenses were $4.9 million for the year ended December 31, 2014, an increase of $0.7 million,
or 17.5%, compared with $4.2 million for the year ended December 31, 2013. The increase was primarily due to higher payroll
related costs, including unpaid incentive bonus costs, our fourth quarter acquisitions and unfavorable currency translation.
29
Restructuring
Restructuring charges were $1.0 million for the year ended December 31, 2014 compared with $2.2 million for the year
ended December 31, 2013. The decrease was primarily due to charges recorded during the year ended December 31, 2013 related
to the company-wide restructuring plan we implemented during the year ended December 31, 2013, partially offset by additional
charges recorded during the year ended December 31, 2014 related to the 2013 restructuring plan and charges related to the 2014
restructuring plan. The 2013 restructuring plan realigned global operations and included a reduction of our workforce of
approximately 13%, as well as the elimination of the position of Chief Operating Officer. The 2014 restructuring plan realigned
global operations and included actions to move the Biochrom and Denville Scientific operations to Holliston, MA and Charlotte,
NC, respectively.
Amortization of intangible assets
Amortization of intangible asset expenses was $2.6 million for the year ended December 31, 2014, which was unchanged
from the year ended December 31, 2013.
Biostage transaction costs
Biostage transaction costs, which consist of corporate transaction costs related to the separation and spin-off of Biostage,
were $0 for the year ended December 31, 2014 compared with $2 million for the year ended December 31, 2013.
Gain on sale of assets
As part of the previously discussed 2013 restructuring plan, we decided to close one of our facilities in the United Kingdom.
During the fourth quarter of 2014, the facility was sold. The gain of $0.8 million was recorded in a separate line in our statement
of operations within operating expenses.
Other expense, net
Other expense, net, was $2.2 million and $1.1 million for the years ended December 31, 2014 and 2013, respectively.
Interest expense was $1.0 million for the year ended December 31, 2014, which was flat compared to interest expense for the
year ended December 31, 2013. The increase in other expense, net was due to $1.1 million in acquisition related costs incurred
during the year ended December 31, 2014 compared to $0 for the year ended December 31, 2013.
Income taxes
Income tax expense (benefit) from continuing operations was approximately $2.1 million expense and $0.3 benefit for the
years ended December 31, 2014 and 2013, respectively. The effective income tax rate from continuing operations was 46.7%
expense for the year ended December 31, 2014, compared with 66.2% benefit for the same period in 2013. The difference
between our effective tax rate year over year was primarily attributable an increase in valuation allowance related to foreign tax
credits in 2014 versus certain non-deductible costs related to the Biostage spin-off partially offset by higher research and
development tax credits and pension expense in 2013.
Discontinued Operations
In September 2008, we completed the sale of assets of our Union Biometrica Division including our German subsidiary,
Union Biometrica GmbH, to UBIO Acquisition Company. During 2013, we received earn-out payments, including interest, from
UBIO Acquisition Company, of $1.8 million related to the 2008 acquisition. We received our final payment under the earn-out
obligation from UBIO Acquisition Company in October 2013. Included in the loss from discontinued operations, net of taxes, is
a gain on disposal related to the Union Biometrica earn-out of $0.3 million for the year ended December 31, 2013.
On November 1, 2013, the spin-off of Biostage and our RMD business was completed. Through the spin-off date the
historical operations of RMD were reported as continuing operations in our consolidated statements of operations. Following the
spin-off, the historical operations of RMD were restated and presented as discontinued operations in our consolidated statements
of operations. Discontinued operations include the results of the RMD business except for certain corporate overhead costs and
other allocations, which remain in continuing operations. The costs we incurred to separate and spin-off the RMD business are
included in our continuing operations and have been classified and reported as transaction costs, within operating expenses, on
our consolidated statements of operations. Loss from discontinued operations, net of taxes, related to RMD was $2.8 million for
the year ended December 31, 2013.
30
Liquidity and Capital Resources
Historically, we have financed our business through cash provided by operating activities, the issuance of common stock,
and bank borrowings. Our liquidity requirements arise primarily from investing activities, including funding of acquisitions, and
other capital expenditures. As previously discussed, on October 1, 2014, we acquired all of the issued and outstanding shares of
two life science companies, MCS and TBSI, for approximately $12.7 million, net of cash acquired. We funded the acquisitions
of MCS and TBSI from our existing cash balances and borrowings under our credit facility, respectively. Additionally, on January
8, 2015, we acquired all of the issued and outstanding shares of HEKA for approximately $4.5 million, net of cash acquired. We
funded the acquisition from our existing cash balances.
In our consolidated statements of cash flows, we have elected to combine the cash flows from both continuing and
discontinued operations within each category, as allowed by FASB ASC 230 “Statement of Cash Flows”. Unless specifically
noted otherwise, our discussion of our cash flows below refers to combined cash flows from both continuing and discontinued
operations.
As of December 31, 2015, we held cash and cash equivalents of $6.7 million, compared with $14.1 million at December
31, 2014. As of December 31, 2015 and December 31, 2014, we had $18.9 million and $21.5 million, respectively, of borrowings
outstanding under our credit facility. Total debt, net of cash and cash equivalents was $12.2 million at December 31, 2015,
compared to $7.4 million at December 31, 2014. In addition, we had an underfunded United Kingdom pension liability of
approximately $2.8 million and $4.4 million at December 31, 2015 and December 31, 2014, respectively.
As of December 31, 2015 and December 31, 2014, cash and cash equivalents held by our foreign subsidiaries was $5.7
million and $12.7 million, respectively. Funds held by our foreign subsidiaries are not available for domestic operations unless
the funds are repatriated. If we planned to or did repatriate these funds, then United States federal and state income taxes would
have to be recorded on such amounts. Our reinvestment determination is based on the future operational and capital requirements
of our U.S. and non-U.S. operations. As of December 31, 2015, we determined that the assertion of permanent reinvestment at
our foreign subsidiaries in Canada and France was no longer appropriate and we intend to repatriate approximately $3.2 million.
The total tax liability associated with the intention to repatriate undistributed earnings in Canada and France is estimated to be
approximately $1.7 million, however the liability is expected to be entirely offset by the foreign tax credits generated from the
repatriation. We currently have no plans and do not intend to repatriate any of our undistributed foreign earnings in any other
countries outside of Canada and France. These balances are considered permanently reinvested and will be used for foreign items
including foreign acquisitions, capital investments, pension obligations and operations. It is impracticable to estimate the total
tax liability, if any, which would be created by the future distribution of these earnings.
In October 2014, we acquired all the issued and outstanding shares of MCS, a German manufacturer, and utilized
approximately $11.2 million of our foreign cash on hand. In January 2015, we acquired all the issued and outstanding shares of
HEKA, a manufacturer with operations in Germany and Canada, and utilized approximately $5.9 million of our foreign cash on
hand. In 2015, the Company also used $0.3 million of foreign cash on hand for capital improvements at AHN, a German
manufacturer.
31
Condensed Cash Flow Statements
(unaudited)
2015
Year Ended December 31, 2015
2014
(in thousands)
2013
Cash flows from operations:
Net (loss) income .......................................................................................... $
Changes in assets and liabilities ................................................................
Other adjustments to operating cash flows ................................................
Net cash provided by operating activities .............................................
(19,039) $
(2,719)
22,463
705
2,355 $
(4,514)
6,510
4,351
Investing activities:
Additions to property, plant and equipment ..................................................
Acquisitions, net of cash acquired .................................................................
Other investing activities ...............................................................................
Net cash (used in) provided by investing activities ...................................
(2,960)
(4,545)
(12)
(7,517)
(2,005)
(12,653)
1,141
(13,517)
(1,830)
1,940
3,950
4,060
(1,622)
-
1,793
171
Financing activities:
Net (repayments of) proceeds from issuance of debt ....................................
Transfer of cash and cash equivalents to Biostage ........................................
Other financing activities ..............................................................................
Net cash (used in) provided by financing activities ..................................
(2,550)
-
2,010
(540)
(3,300)
-
2,066
(1,234)
11,800
(15,041)
3,309
68
Effect of exchange rate changes on cash ...........................................................
(38)
(1,237)
791
(Decrease) increase in cash and cash equivalents ............................................. $
(7,390) $
(11,637) $
5,090
Our operating activities provided cash of $0.7 million, $4.4 million and $4.1 million for the years ended December 31,
2015, 2014 and 2013, respectively. The decrease in cash flows from operations in 2015 compared to 2014 was primarily due to
lower operating income year over year. Our cash flows from operations for the year ended December 31, 2015 was also impacted
by higher temporary inventory requirements necessary to relocate and consolidate certain of our distribution and manufacturing
facilities, including, but not limited to, our Denville Scientific distribution business from New Jersey to North Carolina, and the
consolidation of our United Kingdom manufacturing operations and Coulbourn’s operations with our Holliston, MA facility. The
increase in cash flows from operations in 2014 compared to 2013 was primarily due to higher net income for the year ended
December 31, 2014 compared to the same period in 2013, partially offset by an increase in inventory for the year ended December
31, 2014 compared to the same period in 2013. The increase was the result of higher temporary inventory requirements necessary
to relocate our Denville Scientific distribution business from New Jersey to North Carolina and the consolidation of our United
Kingdom manufacturing operations with our Holliston, MA facility.
Our investing activities used cash of $7.5 million during the year ended December 31, 2015, used $13.5 million for the
year ended December 31, 2014, and provided $0.2 million for the year ended December 31, 2013. Investing activities during the
2015, 2014 and 2013 included purchases of property, plant and equipment, proceeds from the sale of property, plant and
equipment and expenditures for our catalogs. Unique to 2015 and 2014, investing activities included acquisitions net of cash
acquired. Additionally, unique to 2013, investing activities included net cash proceeds from the sale of discontinued operations.
In January 2015, we acquired HEKA for approximately $4.5 million, net of cash acquired. In October 2014, we acquired MCS
and TBSI for approximately $11.0 million and $1.7 million, net of cash acquired, respectively. All of these payments were
included in “Acquisitions, net of cash acquired” under investing activities. These acquisitions were funded from our existing
cash balances and borrowings under our credit facility. During 2013, $1.8 million was received from UBI Acquisition Corp.
pertaining to the proceeds from the sale of discontinued operations. Proceeds from the sale of property plant and equipment in
2014 were $1.1 million, and includes the proceeds from the sale of one of our United Kingdom facilities which was formerly
classified as an asset held-for-sale. During 2015, 2014 and 2013, capital expenditures were $3.0 million, $2.0 million and $1.6
million, respectively. The increase in capital expenditures year over year was due to the investment in implementing a new
enterprise resource planning platform, as well as capital expenditures to relocate our Denville Scientific distribution business and
United Kingdom manufacturing operations to North Carolina and Holliston, MA, respectively.
Our financing activities have historically consisted of borrowings and repayments under our revolving credit facility and
term loans, payments of debt issuance costs, the issuance of common stock and, unique to 2013, the transfer of cash as part of
32
the separation and spin-off of Biostage. During the years ended December 31, 2015 and 2014, financing activities used cash of
$0.5 million and $1.2 million, respectively, and provided $0.1 million of cash for the year ended December 31, 2013. During the
year ended December 31, 2015, we borrowed $5.8 million under our credit facility, repaid $8.4 million of debt under our credit
facility and term loans and ended the year with $18.9 million of borrowings. Net proceeds from the issuance of common stock
for the year ended December 31, 2015 were $2.0 million, which related to the exercise of stock options and the employee stock
purchase plan. During the year ended December 31, 2014, we borrowed $2.2 million under our credit facility to fund the
acquisition of TBSI, repaid $5.5 million of debt under our credit facility and term loans and ended the year with $21.5 million of
borrowings. Net proceeds from the issuance of common stock for 2014 were $2.1 million, which related to the exercise of stock
options and the employee stock purchase plan. During the year ended December 31, 2013, we transferred approximately $15.0
million to fund Biostage’s operations in connection with the spin-off. Additionally, we borrowed $14.6 million and repaid $2.8
million of debt under our credit facility and term loans. Net proceeds from the issuance of common stock for 2013 were $3.6
million. During the year ended December 31, 2013, we paid debt issuance costs of $0.3 million.
Borrowing Arrangements
On August 7, 2009, we entered into an Amended and Restated Revolving Credit Loan Agreement related to a $20.0 million
revolving credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co as lenders
(as amended, the “2009 Credit Agreement”). On September 30, 2011, we entered into the First Amendment to the Amended and
Restated Revolving Credit Loan Agreement (the “First Amendment”) with Bank of America as agent, and Bank of America and
Brown Brothers Harriman & Co as lenders. The First Amendment extended the maturity date of our credit facility to August 7,
2013 and reduced the interest rate to the London Interbank Offered Rate plus 3.0%. On October 4, 2012, we entered into the
Second Amendment to the Amended and Restated Revolving Credit Loan Agreement (the “Second Amendment”) with Bank of
America as agent, and Bank of America and Brown Brothers Harriman & Co as lenders. The Second Amendment extended the
maturity date of our credit facility to August 7, 2014.
On March 29, 2013, we entered into a Second Amended and Restated Revolving Credit Agreement (as amended, the
“Credit Agreement”) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co as lenders, that
amended and restated the 2009 Credit Agreement. The Credit Agreement converted our existing outstanding revolving advances
into a term loan in the principal amount of $15.0 million (the “Term Loan”), provided a revolving credit facility in the maximum
principal amount of $25.0 million (“Revolving Line”) and provided a delayed draw term loan of up to $15.0 million (the
“DDTL”) to fund our capital contributions to Biostage. The maximum amount available under the Credit Agreement is $50.0
million as borrowings against the DDTL in excess of $10.0 million result in a dollar for dollar reduction in the Revolving Line
capacity. The Revolving Line, Term Loan and DDTL each have a maturity date of March 29, 2018 (the maturity date of the
Revolving Line was extended from March 29, 2016 in connection with the Third Amendment discussed below).
On October 31, 2013, we amended the Credit Agreement to reduce the DDTL from up to $15.0 million to up to $10.0
million and allow for an additional $5.0 million to be available for drawing as advances under the Revolving Line.
On April 24, 2015, we entered into the Third Amendment to the Second Amended and Restated Credit Agreement (the
“Third Amendment”), which extended the maturity date of the Revolving Line to March 29, 2018 and reduced the interest rates
on the Revolving Line, Term Loan and DDTL. Borrowings under the Term Loan and the DDTL accrued interest at a rate based
on either the effective London Interbank Offered Rate (LIBOR) for certain interest periods selected by us, or a daily floating rate
based on the British Bankers’ Association (BBA) LIBOR as published by Reuters (or other commercially available source
providing quotations of BBA LIBOR), plus in either case, a margin of 2.75%. Prior to the Third Amendment, the Revolving Line
accrued interest at a rate based on either the effective LIBOR for certain interest periods selected by us, or a daily floating rate
based on the BBA LIBOR, plus in either case, a margin of 2.25%. We were required to fix the rate of interest on at least 50% of
the Term Loan and the DDTL through the purchase of interest rate swaps. The Term Loan and DDTL each have interest payments
due at the end of the applicable LIBOR period, or monthly with respect to BBA LIBOR borrowings, and principal payments due
quarterly. The Revolving Line has interest payments due at the end of the applicable LIBOR period, or monthly with respect to
BBA LIBOR borrowings.
On June 30, 2015, we entered into the Fourth Amendment to the Second Amended and Restated Credit Agreement, which
amended our quarterly minimum fixed charge coverage financial covenant.
On November 5, 2015, we entered into the Fifth Amendment to the Second Amended and Restated Credit Agreement,
which eliminated our 2015 fourth quarter minimum fixed charge coverage financial covenant requirement. As part of this
amendment, the maximum principal amount on the Revolving Line was reduced to $10.0 million until June 30, 2016, at which
time, the maximum principal amount will be restored to $25.0 million, as long as we remain in compliance with all covenants.
33
On March 9, 2016, we entered into the Sixth Amendment to the Second Amended and Restated Credit Agreement, which
amended the principal payment amortization of the Term Loan and DDTL to five years, as well as amended our quarterly
minimum fixed charge coverage financial covenant.
At December 31, 2015, the weighted effective interest rates on the Term Loan, DDTL and Revolving Line borrowings
were 3.96%, 3.55% and 2.67%, respectively. The Credit Agreement includes covenants relating to income, debt coverage and
cash flow, as well as minimum working capital requirements. The Credit Agreement also contains limitations on our ability to
incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes and/or other
consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. As of December
31, 2015, we were in compliance with all financial covenants contained in the Credit Agreement; we were subject to covenant
and working capital borrowing restrictions, and had available borrowing capacity under the Credit Agreement of $2.3 million.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors.
Based on our current operations and current operating plans, we expect that our available cash, cash generated from current
operations and debt capacity will be sufficient to finance current operations, any potential future acquisitions and capital
expenditures for the next 12 months and beyond. This may involve incurring additional debt or raising equity capital for our
business. Additional capital raising activities will dilute the ownership interests of existing stockholders to the extent we raise
capital by issuing equity securities and we cannot guarantee that we will be successful in raising additional capital on favorable
terms or at all.
Contractual Obligations
The following schedule represents our contractual obligations for our continuing operations, excluding interest, as of
December 31, 2015.
Total
2016
2017
Bank credit facility and notes payable .... $
Operating leases ......................................
Total ........................................................ $
18,900 $
12,565
31,465 $
2,450 $
1,843
4,293 $
2018
(in thousands)
14,000 $
1,727
15,727 $
2,450 $
1,749
4,199 $
2019
2020
2021 and
Beyond
- $
1,526
1,526 $
- $
1,527
1,527 $
-
4,193
4,193
We have a liability at December 31, 2015 and 2014 of $0.3 million for uncertain tax positions taken in an income tax
return. We do not know the ultimate resolution of these uncertain tax positions and as such, do not know the ultimate timing of
payments related to this liability. Accordingly, this amount is not included in the above table.
We have an underfunded United Kingdom pension liability of $2.8 million and $4.4 million as of December 31, 2015 and
2014, respectively, which is recognized as part of the "Other long term liabilities" line item in our consolidated balance sheets.
Since we do not know the ultimate timing of payments related to this liability, this amount has not been included in the above
table.
Critical Accounting Policies
We believe that our critical accounting policies are as follows:
•
•
•
•
•
•
revenue recognition;
accounting for income taxes;
inventory;
valuation of identifiable intangible assets in business combinations;
valuation of long-lived and intangible assets and goodwill; and
stock-based compensation.
34
Revenue recognition. We follow the provisions of FASB ASC 605, “Revenue Recognition”. We recognize revenue of
products when persuasive evidence of a sales arrangement exists, the price to the buyer is fixed or determinable, delivery has
occurred, and collectability of the sales price is reasonably assured. Sales of some of our products include provisions to provide
additional services such as installation and training. Revenues on these products are recognized when the additional services
have been performed. Service agreements on our equipment are typically sold separately from the sale of the equipment.
Revenues on these service agreements are recognized ratably over the life of the agreement, typically one year, in accordance
with the provisions of FASB ASC 605-20, “Revenue Recognition—Services”.
We account for shipping and handling fees and costs in accordance with the provisions of FASB ASC 605-45-45,
“Revenue Recognition—Principal Agent Considerations”, which requires all amounts charged to customers for shipping and
handling to be classified as revenues. Our costs incurred related to shipping and handling are classified as cost of product
revenues. Warranties and product returns are estimated and accrued for at the time sales are recorded. We have no obligations to
customers after the date products are shipped or installed, if applicable, other than pursuant to warranty obligations and service
or maintenance contracts. We provide for the estimated amount of future returns upon shipment of products or installation, if
applicable, based on historical experience. Historically, product returns and warranty costs have not been significant, and they
have been within our expectations and the provisions established, however, there is no assurance that we will continue to
experience the same return rates and warranty repair costs that we have in the past. Any significant increase in product return
rates or a significant increase in the cost to repair our products could have a material adverse impact on our operating results for
the period or periods in which such returns or increased costs materialize.
We make estimates evaluating our allowance for doubtful accounts. On an ongoing basis, we monitor collections and
payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any
specific customer collection issues that we have identified. Historically, such credit losses have not been significant, and they
have been within our expectations and the provisions established, however, there is no assurance that we will continue to
experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our
customers could have a material adverse impact on the collectability of our accounts receivable and our future operating results.
Accounting for income taxes. We determine our annual income tax provision in each of the jurisdictions in which we
operate. This involves determining our current and deferred income tax expense that reflects accounting for differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The future tax
consequences attributable to these differences result in deferred tax assets and liabilities, which are included in our consolidated
balance sheets. We assess the recoverability of the deferred tax assets by considering whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. To the extent we believe that recovery does not meet this “more likely
than not” standard as required in FASB ASC 740, “Income Taxes”, we must establish a valuation allowance. If a valuation
allowance is established, increased or decreased in a period, we allocate the related income tax expense or benefit to income from
continuing operations in the consolidated statement of operations.
Management’s judgment and estimates are required in determining our income tax provision, deferred tax assets and
liabilities and any valuation allowance recorded against deferred tax assets. We review the recoverability of deferred tax assets
during each reporting period by reviewing estimates of future taxable income, future reversals of existing taxable temporary
differences, and tax planning strategies that would, if necessary, be implemented to realize the benefit of a deferred tax asset
before expiration. Due to our three year cumulative loss position, we concluded that a full valuation allowance was required to
offset most U.S. deferred tax assets, net of deferred tax liabilities except deferred tax liabilities related to indefinite lived
intangible assets. At December 31, 2015, we have a valuation allowance of $18.8 million, of which $18.4 million relates to our
U.S. deferred tax assets. The remainder relates to deferred tax assets in certain foreign jurisdictions.
We assess tax positions taken on tax returns, including recognition of potential interest and penalties, in accordance with
the recognition thresholds and measurement attributes outlined in FASB ASC 740. Interest and penalties recognized, if any,
would be classified as a component of income tax expense.
Inventory. We value our inventory at the lower of the actual cost to purchase (first-in, first-out method) and/or
manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on
hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value if less than cost,
based primarily on historical inventory usage and estimated forecast of product demand. Since forecasted product demand quite
often is a function of previous and current demand, a significant decrease in demand could result in an increase in the charges
for excess inventory quantities on hand. In addition, our industry is subject to technological change and new product development,
and technological advances could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, any
significant unanticipated changes in demand or technological developments could have a significant adverse impact on the value
of our inventory and our reported operating results.
35
Valuation of identifiable intangible assets acquired in business combinations. The determination of the fair value of
intangible assets, which represents a significant portion of the purchase price in our acquisitions, requires the use of significant
judgment with regard to (i) the fair value; and (ii) whether such intangibles are amortizable or not amortizable and, if the former,
the period and the method by which the intangibles asset will be amortized. We estimate the fair value of acquisition-related
intangible assets principally based on projections of cash flows that will arise from identifiable assets of acquired businesses.
The projected cash flows are discounted to determine the present value of the assets at the dates of acquisitions. At December
31, 2015, amortizable intangible assets include existing technology, trade names, distribution agreements, customer relationships
and patents. These amortizable intangible assets are amortized on a straight-line basis over 7 to 15 years, 10 to 15 years, 4 to 5
years, 5 to 15 years and 5 to 15 years, respectively.
Valuation of long-lived and intangible assets. In accordance with the provisions of FASB ASC 360, “Property, Plant
and Equipment”, we assess the value of identifiable intangibles with finite lives and long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review include the following: significant underperformance relative to expected historical or
projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our
overall business; significant negative industry or economic trends; significant changes in who our competitors are and what they
do; significant changes in our relationship with our distributors; significant decline in our stock price for a sustained period; and
our market capitalization relative to net book value.
If we were to determine that the value of long-lived assets and identifiable intangible assets with finite lives was not
recoverable based on the existence of one or more of the aforementioned factors, then the recoverability of those assets to be
held and used would be measured by a comparison of the carrying amount of those assets to undiscounted future net cash flows
before tax effects expected to be generated by those assets. If such assets are considered to be impaired, the impairment to be
recognized would be measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.
Goodwill and Other Intangible Assets. FASB ASC 350, “Intangibles-Goodwill and Others” addresses financial
accounting and reporting for acquired goodwill and other intangible assets. Among other things, FASB ASC 350 requires that
goodwill and intangible assets with indefinite useful lives no longer be amortized, but rather tested annually for impairment or
more frequently if events or circumstances indicate that there may be impairment. Goodwill is also subject to an annual
impairment test, or more frequently, if indicators of potential impairment arise. ASU 2011-08 intends to simplify goodwill
impairment testing by permitting an assessment of qualitative factors to determine when events and circumstances lead to the
conclusion that it is necessary to perform the two-step goodwill impairment test required under ASC 350. The two-step goodwill
impairment test consists of a comparison of the fair value of our reporting units with their carrying amount. If the carrying amount
exceeds its fair value, we are required to perform the second step of the impairment test, as this is an indication that goodwill
may be impaired. The impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with its
carrying amount. If the carrying amount exceeds the implied fair value, an impairment loss shall be recognized in an amount
equal to the excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new
accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited. For unamortizable intangible
assets, if the carrying amount were to exceed the fair value of the asset we would write down the unamortizable intangible asset
to fair value.
For the purpose of our goodwill analysis, and following the spin-off of Biostage, we have one reporting unit. We conducted
our annual impairment analysis in the fourth quarter of fiscal year 2015. The determination of the fair value of the reporting unit
requires us to make a significant estimate on control premiums appropriate of industries in which we compete. We compared our
carrying value to our overall market capitalization.
The results of our test for goodwill impairment showed that the estimated fair value of our business substantially exceeded
its carrying value. We concluded that none of our goodwill was impaired. We also concluded that the fair value of the
unamortized intangible assets significantly exceeds the carrying amounts.
Stock-based compensation. We account for stock-based payment awards in accordance with the provisions of FASB
ASC 718, “Compensation—Stock Compensation”, which requires us to recognize compensation expense for all stock-based
payment awards made to employees and directors including stock options, restricted stock units, restricted stock units with a
market condition and employee stock purchases related to our Employee Stock Purchase Plan (as amended, “ESPP”). We issue
new shares upon stock option exercises, upon the vesting of restricted stock units and restricted stock units with a market
condition, and under our ESPP.
FASB ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using
an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in our consolidated statement of operations. Stock-based compensation expense has been reduced
36
for estimated forfeitures. FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
We value stock-based payment awards, except restricted stock awards, at the grant date using the Black-Scholes option-
pricing model. We value the restricted stock units with a market condition at the grant date using a Monte-Carlo valuation
simulation. Our determination of fair value of stock-based payment awards on the date of grant using an option-pricing model or
Monte-Carlo valuation simulation is affected by our stock price as well as assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the
awards and actual and projected stock option exercise behaviors.
The fair value of restricted stock units are based on the market price of our common stock on the date of grant and are
recorded as compensation expense ratably over the applicable service period, which ranges from one to four years. Unvested
restricted stock units are forfeited in the event of termination of employment or engagement with our Company.
We record stock compensation expense on a straight-line basis over the requisite service period for all awards granted.
Impact of Foreign Currencies
Our international operations in some instances operate in a natural hedge as we sell our products in many countries and a
substantial portion of our revenues, costs and expenses are denominated in foreign currencies, especially the British pound
sterling, the Euro, the Canadian dollar and the Swedish krona.
For the year ended December 31, 2015, the U.S dollar’s strengthening in relation to those currencies resulted in an
unfavorable translation effect on our consolidated revenues and on our consolidated net loss. Changes in foreign currency
exchange rates resulted in an unfavorable effect on revenues of approximately $4.0 million and a favorable effect on expenses
of approximately $3.6 million. Conversely, during 2014, the U.S dollar’s weakening in relation to those currencies resulted in a
favorable translation effect on our consolidated revenues and our net income. Changes in foreign currency exchange rates resulted
in a favorable effect on revenues of approximately $1.0 million and an unfavorable effect on expenses of approximately $0.8
million. During 2013, the U.S dollar’s weakening in relation to those currencies resulted in a favorable translation effect on our
consolidated revenues and a neutral effect our net income. Changes in foreign currency exchange rates resulted in a favorable
effect on revenues of $0.2 million and negative effect on expenses of $0.2 million.
The loss associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive
(loss) income, was approximately $4.9 million and $5.9 million for the years ended December 31, 2015 and 2014, respectively,
compared to a gain of $1.6 million for the year ended December 31, 2013.
In addition, currency exchange rate fluctuations included as a component of net (loss) income resulted in an approximately
$0.2 million gain during the year ended December 31, 2015, compared to losses of approximately $0.2 million and $0.1 million
during the years ended December 31, 2014 and 2013, respectively.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
“Revenue from Contracts with Customers,” a new accounting standard that provides for a comprehensive model to use in the
accounting for revenue arising from contracts with customers that will replace most existing revenue recognition guidance within
accounting principles generally accepted in the United States. Under this standard, revenue will be recognized to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled
in exchange for those goods or services. At its July 2015 meeting, the FASB agreed to defer the mandatory effective date of ASU
2014-09 one year. Under the one year deferral, the standard will take effect in 2018 for calendar year-end public entities. We are
assessing the new standard and have not yet determined the impact to our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented
in the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of being presented as an
asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires
retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after
December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. We believe the
adoption of this new guidance will not have a material impact on our consolidated financial position or results of operations.
37
In July 2015, the FASB issued ASU 2015-11, Simplifying Measurement of Inventory. The update requires measurement of
most inventory “at the lower of cost and net realizable value”, and applies to all entities that recognize inventory within the scope
of ASC 330, except for inventory measured under the last-in, first-out (LIFO) method or the retail inventory method (RIM). ASU
2015-11 requires prospective application and represents a change in accounting principle. The update is effective for fiscal years
beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued.
We are evaluating the impact of ASU 2015-11 on our consolidated financial statements and the possibility of early adoption
thereof.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The
update eliminates the requirement to retrospectively adjust financial statements for measurement-period adjustments that occur
in periods after a business combination. Under the update, measurement-period adjustments are to be calculated as if they were
known at the acquisition date, but are recognized in the reporting period in which they are determined. Additional disclosures
are required about the impact on current-period earnings. ASU 2015-16 requires prospective application to adjustments of
provisional amounts that occur after the effective date. The update is effective for fiscal years beginning after December 15,
2016. Early adoption is permitted for financial statements that have not been previously issued. We are evaluating the impact of
ASU 2015-16 on our consolidated financial statements and the possibility of early adoption thereof.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The update requires
all deferred income taxes to be presented on the balance sheet as noncurrent. The new guidance is intended to simplify financial
reporting by eliminating the requirement to classify deferred taxes between current and noncurrent. The update is effective for
fiscal years beginning after December 15, 2016. Early adoption is permitted at the beginning of an interim or annual period. We
are evaluating the impact of ASU 2015-17 on our consolidated financial statements and the possibility of early adoption thereof.
In February 2016, the FASB issued ASU 2016-02, Leases, which is intended to improve financial reporting about leasing
transactions. The update requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations
created by lease terms of more than 12 months. The update is effective for fiscal years beginning after December 15, 2018. We
are evaluating the impact of ASU 2016-02 on our consolidated financial statements.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
The majority of our manufacturing and testing of products occurs in our facilities in the United States, Germany, Sweden
and Spain. We sell our products globally through our distributors, direct sales force, websites and catalogs. As a result, our
financial results are affected by factors such as changes in foreign currency exchange rates and weak economic conditions in
foreign markets.
We collect amounts representing a substantial portion of our revenues and pay amounts representing a substantial portion
of our operating expenses in foreign currencies. As a result, changes in currency exchange rates from time to time may affect our
operating results.
We are exposed to market risk from changes in interest rates primarily through our financing activities. As of December
31, 2015, we had $18.9 million outstanding under our Credit Agreement.
Prior to the Third Amendment, borrowings under the Term Loan and the DDTL accrued interest at a rate based on either
the effective London Interbank Offered Rate (LIBOR) for certain interest periods selected by us, or a daily floating rate based
on the BBA LIBOR as published by Reuters (or other commercially available source providing quotations of BBA LIBOR), plus
in either case, a margin of 3.0%. Prior to the Third Amendment, the Revolving Line accrued interest at a rate based on either the
effective LIBOR for certain interest periods selected by us, or a daily floating rate based on the BBA LIBOR, plus in either case,
a margin of 2.5%. We were required to fix the rate of interest on at least 50% of the Term Loan and the DDTL through the
purchase of an interest rate swap. The Term Loan and DDTL each have interest payments due at the end of the applicable LIBOR
period, or monthly with respect to BBA LIBOR borrowings, and principal payments are due quarterly. The Revolving Line has
interest payments due at the end of the applicable LIBOR period, or monthly with respect to BBA LIBOR borrowings. Effective
June 5, 2013, we entered into an interest rate swap contract with an original notional amount of $15.0 million and a maturity date
of March 29, 2018 in order to hedge the risk of changes in the effective benchmark interest rate (LIBOR) associated with our
Term Loan. The swap contract converted specific variable-rate debt into fixed-rate debt and fixed LIBOR associated with the
Term Loan at 0.96% plus a bank margin of 3.0%. Effective November 29, 2013, we entered into a second interest rate swap
contract with an original notional amount of $5.0 million and a maturity date of March 29, 2018 in order to hedge the risk of
changes in LIBOR associated with a portion of our DDTL. The swap contract converted specific variable-rate debt into fixed
rate debt and fixed LIBOR associated with half of the DDTL amount at 0.93% plus a bank margin of 3.0%. The notional amount
of our derivative instruments as of December 31, 2015 was $9.5 million. These swap contracts were associated with reducing or
eliminating interest rate risk and were designated as cash flow hedge instruments in accordance with ASC 815. We use interest-
38
rate-related derivative instruments to manage our exposure related to changes in interest rates on our variable-rate debt
instruments. We do not enter into derivative instruments for any purpose other than cash flow hedging and we do not speculate
using derivative instruments.
On April 24, 2015, we entered the Third Amendment which extended the maturity date of the Revolving Line to March
29, 2018 and reduced the interest rate to the London Interbank Offered Rate plus 2.25%, 2.75% and 2.75% on the Revolving
Line, Term Loan and DDTL, respectively.
As of December 31, 2015, the weighted effective interest rates, net of the impact of our interest rate swaps, on our Term
Loan , DDTL and Revolving Line borrowings were 3.96%, 3.55% and 2.67%, respectively. Assuming no other changes which
would affect the margin of the interest rate under our Term Loan, DDTL and Revolving Line, the effect of interest rate
fluctuations on outstanding borrowings under our Credit Agreement as of December 31, 2015 over the next twelve months is
quantified and summarized as follows:
Interest
expense
increase
(in thousands)
94
188
If compared to the rate as of December 31, 2015
Interest rates increase by 1% .................................................................................................................................. $
Interest rates increase by 2% .................................................................................................................................. $
Item 8.
Financial Statements and Supplementary Data.
The information required by this item is contained in the consolidated financial statements filed as part of this Annual
Report on Form 10-K are listed under Item 15 of Part IV below.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-
14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 9A includes
information concerning the controls and control evaluations referred to in those certifications.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding our required
disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
We carried out an evaluation, under the supervision and with the participation our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered in this Report. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that due to material weaknesses in our internal control over
financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2015.
Notwithstanding the identified material weaknesses, management has concluded that the consolidated financial statements
included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations
and cash flows at and for the periods presented in accordance with U.S. GAAP.
39
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process
designed by and under the supervision of our Chief Executive Officer and Chief Financial Officer and effected by our
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements for external
purposes in accordance with generally accepted accounting principles, (3) provide reasonable assurance that receipts and
expenditures are being made only in accordance with authorizations of management and directors, and (4) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a
material effect on the consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It is a
process that involves human diligence and compliance and is therefore subject to human error and misjudgment. In general,
evaluations of effectiveness for future periods are subject to risk as controls may become inadequate due to changes in conditions
or the degree of compliance with key processes or procedures could deteriorate.
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2015
using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management excluded from its assessment of the effectiveness of the
Company's internal control over financial reporting as of December 31, 2015, HEKA Elektronik’s internal control over financial
reporting associated with total assets of $6.3 million (of which $4.5 million represents goodwill and intangible assets included
within the scope of the assessment) and total revenues of $3.5 million in the consolidated financial statements of the Company
as of and for the year ended December 31, 2015.
Based on this evaluation, our management concluded that material weaknesses in internal control over financial reporting
existed as of December 31, 2015 as described below:
The Company did not maintain an effective control environment, risk assessment processes, and monitoring activities.
Specifically, the Company has:
(cid:120)
(cid:120)
an ineffective risk assessment process, including fraud risks, which failed to identify and analyze changes in the business
and personnel and implement process level controls and monitoring activities that are responsive to those changes and
aligned with the Company’s financial reporting objectives.
failed to adequately assign authorities and responsibilities over financial reporting at Denville Scientific, Inc. (Denville),
an operating subsidiary.
As a result of the ineffective control environment, risk assessment processes, and monitoring activities:
(cid:120) The Company did not maintain effective general information technology controls (GITCs) to restrict or monitor users’
access within the ERP system at Denville and ensure user roles were adequately restricted to authorized personnel
commensurate with their job responsibilities. Accordingly, the Company did not have appropriate segregation of duties,
and as such, an individual at Denville had the ability to perform multiple conflicting duties that could impact all financial
statement accounts. Additionally, the Company did not have effective monitoring controls over those activities.
The Company failed to design and operate effective process level control activities over:
(cid:120)
the completeness and accuracy of data used in the preparation and review of financial statement reconciliations at
Denville, potentially impacting all financial statement accounts.
40
(cid:120)
(cid:120)
(cid:120)
the completeness, accuracy, existence and authorization of transactions recorded through manual journal entries at
Denville, including review of the underlying information used to support them, potentially impacting all financial
statement accounts.
the existence and accuracy of data and assumptions used in the measurement of inventory, specifically, inventory costs
associated with the prior year’s business acquisition and recurring purchases at Multi Channel Systems MCS GmbH
(MCS), an operating subsidiary. In addition, the Company did not operate effective controls over inventory reserve
adjustments at Biochrom Limited (Biochrom), an operating subsidiary.
the recognition, measurement, and disclosure of current and deferred income taxes. Specifically, the management review
controls did not adequately address the criteria for investigation, level of precision, and the completeness and accuracy
of data and assumptions used in the performance of the control as it relates to the recording of current and deferred tax
balances and any associated valuation allowance.
The control deficiencies described above resulted in certain material and immaterial misstatements in the preliminary
financial statement accounts that were corrected prior to the issuance of the annual consolidated financial statements. The control
deficiencies create a reasonable possibility that a material misstatement to our consolidated financial statements will not be
prevented or detected on a timely basis, and therefore we concluded that the deficiencies represent material weaknesses in our
internal control over financial reporting and our internal control over financial reporting is not effective as of December 31, 2015.
Our independent registered public accounting firm, KPMG LLP, has expressed an adverse report on the operating
effectiveness of our internal control over financial reporting. KPMG LLP’s report appears on page 42 below.
(c) Changes in Internal Controls Over Financial Reporting
Other than the identification of the material weaknesses described above which originated in earlier periods, there have
been no changes in internal control over financial reporting during the period covered by this Report that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
(d) Remediation Plan
We are committed to remediating the material weaknesses in a timely fashion. We have begun the process of developing
a remediation plan that will address the material weaknesses in internal control over financial reporting described above.
Specifically, we intend to implement and monitor the following actions:
(cid:120)
(cid:120)
evaluate and revise the assignment of authorities and responsibilities over financial reporting at Denville;
evaluate and revise the risk assessment process, including fraud risks, and monitoring activities in order to effectively
identify, analyze and determine how the Company will respond to changes affecting the Company’s financial reporting
processes and the Company’s internal controls over financial reporting;
(cid:120) design and implement general information technology controls (GITCs) and other controls to restrict personnel at
Denville from performing conflicting duties that could impact financial statement accounts;
(cid:120) design and implement controls over Denville account reconciliations and manual journal entries so they are properly
prepared, supported by adequate documentation, and independently reviewed;
(cid:120)
review the processes to measure inventory at MCS and Biochrom and design and implement controls to ensure existence
and accuracy of inventory; and
(cid:120) design and implement management review controls that adequately address the criteria for investigation, level of
precision, and the completeness and accuracy of current and deferred income taxes and associated valuation allowances.
(e) Inherent Limitations on Effectiveness of Controls
The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may not deteriorate. Because of their inherent limitations, systems of control may not prevent or detect all
misstatements. Accordingly, even effective systems of control can provide only reasonable assurance of achieving their control
objectives.
41
(f) Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Harvard Bioscience, Inc.:
We have audited Harvard Bioscience, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Harvard Bioscience, Inc.’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Management’s Annual Report on Internal Control Over Financial Reporting.” Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis. Material weaknesses related to:
(cid:120)
Ineffective risk assessment process, including fraud risks, which failed to identify and analyze changes in the business and
personnel and implement process level controls and monitoring activities responsive to those changes;
(cid:120) An ineffective control environment at Denville Scientific, Inc. (Denville), an operating subsidiary, over the assignment of
authorities and responsibilities over financial reporting;
(cid:120)
(cid:120)
Ineffective general information technology controls (GITCs) to restrict or monitor users’ access within the ERP system at
Denville and ensure user roles were adequately restricted, which resulted in inappropriate segregation of duties;
Ineffective design and operation of process level control activities related to:
(cid:120)
financial statement reconciliations at Denville;
(cid:120) manual journal entries at Denville;
(cid:120)
(cid:120)
the measurement of inventory costs at Multi Channel Systems MCS GmbH, an operating subsidiary, and inventory
reserve adjustments at Biochrom Limited, an operating subsidiary; and
the recognition, measurement, and disclosure of current and deferred income taxes
42
have been identified and included in management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Harvard Bioscience, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the years
in the three-year period ended December 31, 2015. These material weaknesses were considered in determining the nature, timing,
and extent of audit tests applied in our audit of the 2015 consolidated financial statements, and this report does not affect our
report dated April 29, 2016, which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the
control criteria, Harvard Bioscience, Inc. has not maintained effective internal control over financial reporting as of December
31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Harvard Bioscience, Inc. acquired HEKA Elektronik (“HEKA”) during 2015, and management excluded from its assessment of
the effectiveness of the Company's internal control over financial reporting as of December 31, 2015, HEKA’s internal control
over financial reporting associated with total assets of $6.3 million (of which $4.5 million represents goodwill and intangibles
included within the scope of the assessment) and total revenues of $3.5 million in the consolidated financial statements of the
Company as of and for the year ended December 31, 2015. Our audit of internal control over financial reporting of the Company
also excluded an evaluation of the internal control over financial reporting of HEKA.
We do not express an opinion or any other form of assurance on management’s statements referring to corrective actions taken
after Dsecember 31, 2015, relative to the aforementioned material weakness in internal control over financial reporting.
/s/ KPMG LLP
Boston, Massachusetts
April 29, 2016
43
Item 9B.
Other Information.
None.
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange
Act, in connection with our 2016 Annual Meeting of Stockholders. Information concerning executive officers of our Company
is included in Part I of this Annual Report on Form 10-K as Item 1. Business- Executive Officers of the Registrant and
incorporated herein by reference.
Item 11.
Executive Compensation.
Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange
Act in connection with our 2016 Annual Meeting of Stockholders.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange
Act in connection with our 2016 Annual Meeting of Stockholders.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange
Act in connection with our 2016 Annual Meeting of Stockholders.
Item 14.
Principal Accounting Fees and Services.
Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange
Act in connection with our 2016 Annual Meeting of Stockholders.
44
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents Filed. The following documents are filed as part of this Annual Report on Form 10-K or incorporated by reference
as indicated:
1
Financial Statements. The consolidated financial statements of Harvard Bioscience, Inc. and its subsidiaries filed under
this Item 15:
Page
Index to Consolidated Financial Statements ................................................................................................
F-1
Report of Independent Registered Public Accounting Firm ........................................................................
F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 ...............................................................
F-3
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 ..............
F-4
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2015,
2014 and 2013 ..............................................................................................................................................
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and
2013 .............................................................................................................................................................
F-5
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 .............
F-7
Notes to Consolidated Financial Statements ................................................................................................
F-8
2
Exhibits and Exhibit Index. See the Exhibit Index included as the last part of this Annual Report on Form 10-K, which
is incorporated herein by reference.
45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HARVARD BIOSCIENCE, INC.
Page
Report of Independent Registered Public Accounting Firm................................................................................................ F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 ...................................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 ..................................... F-4
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2015, 2014 and 2013 ...... F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013 ..................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 .................................... F-7
Notes to Consolidated Financial Statements ....................................................................................................................... F-8
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Harvard Bioscience, Inc.:
We have audited the accompanying consolidated balance sheets of Harvard Bioscience, Inc. and subsidiaries (the Company) as
of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive (loss) income,
stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Harvard Bioscience, Inc. as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Harvard Bioscience, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated April 29, 2016 expressed an adverse opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/ KPMG LLP
Boston, Massachusetts
April 29, 2016
F-2
HARVARD BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
2015
2014
Assets
Current assets:
Cash and cash equivalents ........................................................................................................ $
Accounts receivable, net of allowance for doubtful accounts of $310 and $328,
respectively .............................................................................................................................
Inventories ................................................................................................................................
Deferred income tax assets – current .......................................................................................
Other receivables and other assets ............................................................................................
Total current assets ...............................................................................................................
Property, plant and equipment, net ...............................................................................................
Deferred income tax assets - non-current .....................................................................................
Amortizable intangible assets, net ................................................................................................
Goodwill.......................................................................................................................................
Indefinite lived intangible assets ..................................................................................................
Other assets ..................................................................................................................................
Total assets ................................................................................................................................... $
Liabilities and Stockholders' Equity
Current liabilities:
Current portion, long-term debt ............................................................................................... $
Accounts payable .....................................................................................................................
Deferred revenue ......................................................................................................................
Accrued income taxes ..............................................................................................................
Accrued expenses .....................................................................................................................
Deferred income tax liabilities – current ..................................................................................
Other liabilities – current ..........................................................................................................
Total current liabilities .........................................................................................................
Long-term debt, less current installments ....................................................................................
Deferred income tax liabilities - non-current ...............................................................................
Other long term liabilities ............................................................................................................
Total liabilities .............................................................................................................................
6,744 $
14,134
17,547
22,343
42
3,873
50,549
5,902
995
20,872
40,357
1,223
319
120,217 $
2,450 $
8,782
752
290
4,021
2,246
868
19,409
16,450
3,775
2,985
42,619
16,141
20,531
1,515
4,742
57,063
5,190
11,056
21,153
39,822
1,252
380
135,916
5,000
6,294
655
554
4,452
121
1,023
18,099
16,450
1,325
4,574
40,448
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized .................................
Common stock, par value $0.01 per share, 80,000,000 shares authorized; 41,724,772 and
40,308,763 shares issued and 33,979,265 and 32,563,256 shares outstanding, respectively .
Additional paid-in-capital ........................................................................................................
Accumulated deficit .................................................................................................................
Accumulated other comprehensive loss ...................................................................................
Treasury stock at cost, 7,745,507 common shares ...................................................................
Total stockholders' equity .....................................................................................................
Total liabilities and stockholders' equity ...................................................................................... $
-
-
416
211,457
(111,723)
(11,884)
(10,668)
77,598
120,217 $
397
206,656
(92,684)
(8,233)
(10,668)
95,468
135,916
See accompanying notes to consolidated financial statements.
F-3
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues ........................................................................................................... $
Cost of revenues (exclusive of items shown separately below) ........................
Gross profit ...................................................................................................
Year Ended December 31,
2014
108,663 $
59,319
49,344
2015
108,664 $
59,941
48,723
2013
105,171
57,475
47,696
Sales and marketing expenses ...........................................................................
General and administrative expenses ................................................................
Research and development expenses ................................................................
Restructuring charges ........................................................................................
Amortization of intangible assets ......................................................................
Biostage transaction costs .................................................................................
Gain on sale of assets, net .................................................................................
Total operating expenses, net ........................................................................
20,577
19,832
6,420
788
2,819
-
-
50,436
18,225
16,826
4,880
1,027
2,578
-
(810)
42,726
17,330
17,887
4,154
2,150
2,590
2,048
-
46,159
Operating (loss) income ....................................................................................
(1,713)
6,618
1,537
Other income (expense):
Foreign exchange ..........................................................................................
Interest expense .............................................................................................
Interest income ..............................................................................................
Other expense, net .........................................................................................
Other expense, net .............................................................................................
(Loss) income from continuing operations before income taxes .......................
Income tax expense (benefit) ............................................................................
(Loss) income from continuing operations........................................................
Discontinued operations:
210
(854)
8
(1,259)
(1,895)
(3,608)
15,431
(19,039)
(150)
(990)
74
(1,135)
(2,201)
4,417
2,062
2,355
(139)
(955)
43
(51)
(1,102)
435
(288)
723
Loss from discontinued operations, net of tax ...............................................
Net (loss) income .............................................................................................. $
-
(19,039) $
-
2,355 $
(2,553)
(1,830)
(Loss) earnings per share:
Basic (loss) earnings per common share from continuing operations ........... $
Discontinued operations ................................................................................
Basic (loss) earnings per common share ....................................................... $
Diluted (loss) earnings per common share from continuing operations ........ $
Discontinued operations ................................................................................
Diluted (loss) earnings per common share .................................................... $
(0.57) $
-
(0.57) $
(0.57) $
-
(0.57) $
0.07 $
-
0.07 $
0.07 $
-
0.07 $
0.02
(0.08)
(0.06)
0.02
(0.08)
(0.06)
Weighted average common shares:
Basic ..............................................................................................................
Diluted ...........................................................................................................
33,593
33,593
32,171
33,237
30,384
31,914
See accompanying notes to consolidated financial statements.
F-4
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
Net (loss) income .............................................................................................. $
Other comprehensive (loss) income:
Foreign currency translation adjustments ..........................................................
Derivatives qualifying as hedges, net of tax:
Loss on derivative instruments designated and qualifying as cash flow
Year Ended December 31,
2014
2013
2015
(19,039) $
2,355 $
(1,830)
(4,936)
(5,941)
1,573
hedges .....................................................................................................
(85)
(99)
(116)
Amounts reclassified from accumulated other comprehensive (loss)
income to net (loss) income ....................................................................
Derivatives qualifying as hedges, net of tax ..................................................
Defined benefit pension plans, net of tax:
Amortization of net losses included in net periodic pension costs, net of
93
8
130
31
67
(49)
tax expense of $58, $52 and $62 in 2015, 2014 and 2013, respectively .
248
207
243
Net gain, net of tax expense of $241, $29 and $115 in 2015, 2014 and
2013, respectively ...................................................................................
Defined benefit pension plans, net of tax ......................................................
Other comprehensive (loss) income ..................................................................
Comprehensive (loss) income ........................................................................... $
1,029
1,277
(3,651)
(22,690) $
114
321
(5,589)
(3,234) $
452
695
2,219
389
See accompanying notes to consolidated financial statements.
F-5
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Additional
20
-
-
-
-
-
-
-
Stock option exercises ......................
Stock purchase plan ..........................
Vesting of restricted stock units ........
Shares withheld for taxes ..................
Distribution to Biostage ....................
Stock compensation expense ............
Net loss .............................................
Other comprehensive income ............
Balance at December 31, 2012 .............. 37,124 $
2,135
57
282
(213)
-
-
-
-
Balance at December 31, 2013 .............. 39,385
695
58
233
(62)
-
-
-
Balance at December 31, 2014 .............. 40,309
1,772
59
237
(652)
-
-
-
Balance at December 31, 2015 .............. 41,725 $
Stock option exercises ......................
Stock purchase plan ..........................
Vesting of restricted stock units ........
Shares withheld for taxes ..................
Stock compensation expense ............
Net loss .............................................
Other comprehensive loss .................
Stock option exercises ......................
Stock purchase plan ..........................
Vesting of restricted stock units ........
Shares withheld for taxes ..................
Stock compensation expense ............
Net income ........................................
Other comprehensive loss .................
Number
of Shares Common Paid-in
Capital
Stock
Issued
370 $ 196,634 $
4,031
194
-
(1,083)
-
2,670
-
-
390 202,446
2,153
228
-
(327)
2,156
-
-
397 206,656
2,605
25
208
-
-
-
(6)
(767)
2,755
-
-
-
-
-
416 $ 211,457 $
7
-
-
-
-
-
-
Accumulated
Other
Total
Accumulated Comprehensive Treasury Stockholders’
Deficit
Income (Loss) Stock
Equity
(77,260) $
-
-
-
-
(15,949)
-
(1,830)
-
(95,039)
-
-
-
-
-
2,355
-
(92,684)
-
-
-
-
-
(19,039)
-
(111,723) $
(4,863) $ (10,668) $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,219
(2,644) (10,668)
-
-
-
-
-
-
-
-
-
-
-
-
(5,589)
-
(8,233) (10,668)
-
-
-
-
-
-
-
(11,884) $ (10,668) $
-
-
-
-
-
-
(3,651)
104,213
4,051
194
-
(1,083)
(15,949)
2,670
(1,830)
2,219
94,485
2,160
228
-
(327)
2,156
2,355
(5,589)
95,468
2,630
208
-
(773)
2,755
(19,039)
(3,651)
77,598
See accompanying notes to consolidated financial statements.
F-6
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2014
2015
2013
Cash flows from operating activities:
Net (loss) income .......................................................................................... $
Adjustments to reconcile net (loss) income to net cash provided by
(19,039) $
2,355 $
(1,830)
operating activities:
Stock compensation expense .....................................................................
Depreciation ..............................................................................................
Earn-out related to discontinued operations ..............................................
Loss (gain) on sale of assets, net ...............................................................
Non-cash restructuring (credit) .................................................................
Amortization of catalog costs ....................................................................
(Recovery) provision for allowance for doubtful accounts .......................
Amortization of intangible assets ..............................................................
Amortization of deferred financing costs ..................................................
Deferred income taxes ...............................................................................
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................................
(Increase) decrease in inventories .........................................................
Decrease (increase) in other receivables and other assets .....................
Increase (decrease) in trade accounts payable .......................................
(Decrease) increase in accrued income taxes ........................................
(Decrease) increase in accrued expenses ...............................................
Increase in deferred revenue ..................................................................
Decrease in other liabilities ...................................................................
Net cash provided by operating activities..........................................
Cash flows (used in) provided by investing activities:
Additions to property, plant and equipment ..................................................
Additions to catalog costs .............................................................................
Proceeds from sale of discontinued operations .............................................
Proceeds from sales of property, plant and equipment ..................................
Acquisitions, net of cash acquired .................................................................
Net cash (used in) provided by investing activities ...................................
Cash flows (used in) provided by financing activities:
Proceeds from issuance of debt .....................................................................
Repayments of debt .......................................................................................
Transfer of cash and cash equivalents to Biostage ........................................
Payments of debt issuance costs ....................................................................
Net proceeds from issuance of common stock ..............................................
Net cash (used in) provided by financing activities ..................................
2,755
1,745
-
25
(85)
9
(7)
2,819
86
15,116
(1,340)
(1,223)
755
2,577
(311)
(1,511)
120
(1,786)
705
(2,960)
(18)
-
6
(4,545)
(7,517)
5,800
(8,350)
-
(32)
2,042
(540)
2,156
1,253
-
(810)
(120)
47
(67)
2,578
61
1,412
(735)
(3,056)
(370)
1,069
(269)
(345)
28
(836)
4,351
(2,005)
-
-
1,141
(12,653)
(13,517)
2,200
(5,500)
-
-
2,066
(1,234)
Effect of exchange rate changes on cash ...........................................................
(Decrease) increase in cash and cash equivalents .............................................
Cash and cash equivalents at the beginning of period .......................................
Cash and cash equivalents at the end of period ................................................. $
(38)
(7,390)
14,134
6,744 $
(1,237)
(11,637)
25,771
14,134
2,670
1,298
(440)
-
(46)
101
172
2,590
46
(2,441)
436
1,921
(1,020)
(41)
323
847
146
(672)
4,060
(1,622)
(57)
1,784
66
-
171
14,550
(2,750)
(15,041)
(312)
3,621
68
791
5,090
20,681
25,771
Supplemental disclosures of cash flow information:
Cash paid for interest .................................................................................... $
Cash paid for income taxes, net of refunds ................................................... $
854 $
963 $
997
843
892
1,479
See accompanying notes to consolidated financial statements.
F-7
HARVARD BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Harvard Bioscience, Inc. ( “Harvard Bioscience” or “the Company”) is a global developer, manufacturer and marketer of
a broad range of scientific instruments, systems and lab consumables used to advance life science for basic research, drug
discovery, clinical and environmental testing. The Company’s products are sold to thousands of researchers in over 100 countries
through its global sales organization, catalogs, websites, and through distributors including GE Healthcare, Thermo Fisher
Scientific Inc., VWR and other specialized distributors. The Company has sales and manufacturing operations in the United
States, the United Kingdom, Germany, Sweden, Spain, France, Canada and China.
.
2.
Summary of Significant Accounting Policies
(a)
Principles of Consolidation
The consolidated financial statements include the accounts of Harvard Bioscience, Inc. and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated in consolidation.
(b)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires the use of management estimates. Such estimates include the determination and establishment of certain accruals and
provisions, including those for inventory excess and obsolescence, income tax and reserves for bad debts. In addition, certain
estimates are required in order to determine the value of assets and liabilities associated with acquisitions, as well as the
Company’s defined benefit pension obligations. Estimates are also required to evaluate the value and recoverability of existing
long-lived and intangible assets, including goodwill. On an ongoing basis, the Company reviews its estimates based upon
currently available information. Actual results could differ materially from those estimates.
(c)
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows, the Company considers all highly liquid
instruments with original maturities of three months or less to be cash equivalents.
(d)
Allowance for Doubtful Accounts
Allowance for doubtful accounts is based on the Company’s assessment of collectability of customer accounts. The
Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts
receivable balances and other factors that may affect a customer’s ability to pay.
(e)
Inventories
The Company values its inventories at the lower of the actual cost to purchase (first-in, first-out method) and/or
manufacture the inventories or the current estimated market value of the inventories. The Company regularly reviews inventory
quantities on hand and records a provision to write down excess and obsolete inventories to its estimated net realizable value if
less than cost, based primarily on historical inventory usage and estimated forecast of product demand.
(f)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful
lives of the assets as follows:
Buildings ......................................................................................................................................
Machinery and equipment ............................................................................................................ 3 - 10
Computer equipment and software .............................................................................................. 3 - 7
Furniture and fixtures ................................................................................................................... 5 - 10
Automobiles ................................................................................................................................. 3 - 6
40 years
years
years
years
years
F-8
Property and equipment held under capital leases and leasehold improvements are amortized using the straight line method
over the shorter of the lease term or estimated useful life of the asset.
(g)
Catalog Costs
Significant costs of product catalog design, development and production are capitalized and amortized over the expected
useful life of the catalog (usually one to three years).
(h)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is more than 50% likely of being realized.
Changes in recognition are reflected in the period in which the judgement occurs.
(i)
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is generally their local currency. All assets and liabilities
of its foreign subsidiaries are translated at exchange rates in effect at period-end. Income and expenses are translated at rates
which approximate those in effect on the transaction dates. The resulting translation adjustment is recorded as a separate
component of stockholders’ equity in accumulated other comprehensive (loss) income (“AOCI”) in the consolidated balance
sheets. Gains and losses resulting from foreign currency transactions are included in net (loss) income.
(j)
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock
outstanding during the periods presented. The computation of diluted earnings per share is similar to the computation of basic
earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially
dilutive securities using the treasury stock method unless the effect is antidilutive. Since the Company is reporting discontinued
operations, it used income from continuing operations as the control number in determining whether those potential dilutive
securities are dilutive or antidilutive.
(k)
Comprehensive (Loss) Income
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 220, “Comprehensive Income”. FASB ASC 220 requires companies to report all changes in equity during
a period, resulting from net (loss) income and transactions from non-owner sources, in a financial statement in the period in
which they are recognized. The Company has chosen to disclose comprehensive (loss) income, which encompasses net (loss)
income, foreign currency translation adjustments, gains and losses on derivatives, the underfunded status of its pension plans,
and pension minimum additional liability adjustments, net of tax, in the consolidated statements of comprehensive (loss) income.
(l)
Revenue Recognition
The Company follows the provisions of FASB ASC 605, “Revenue Recognition”. The Company recognizes product
revenues when persuasive evidence of a sales arrangement exists, the price to the buyer is fixed or determinable, delivery has
occurred, and collectability of the sales price is reasonably assured. Sales of some of its products include provisions to provide
additional services such as installation and training. Revenues on these products are recognized when the additional services
have been performed. Service agreements on its equipment are typically sold separately from the sale of the equipment. Cash
received prior to rendering of the service on these contracts is recorded as deferred revenue and the revenues are recognized
ratably over the life of the agreement, typically one year, in accordance with the provisions of FASB ASC 605-20, “Revenue
Recognition—Services”.
F-9
The Company accounts for shipping and handling fees and costs in accordance with the provisions of FASB ASC 605-
45-45, “Revenue Recognition—Principal Agent Considerations”, which requires all amounts charged to customers for shipping
and handling to be classified as revenues. The costs incurred related to shipping and handling is classified as cost of product
revenues. Warranties and product returns are estimated and accrued for at the time sales are recorded. The Company has no
obligations to customers after the date products are shipped or installed, if applicable, other than pursuant to warranty obligations
and service or maintenance contracts. The Company provides for the estimated amount of future returns upon shipment of
products or installation, if applicable, based on historical experience.
(m)
Valuation of Identifiable Intangible Assets Acquired in Business Combinations
The determination of the fair value of intangible assets, which represents a significant portion of the purchase price in the
Company’s acquisitions, requires the use of significant judgment with regard to (i) the fair value; and (ii) whether such intangibles
are amortizable or not amortizable and, if the former, the period and the method by which the intangibles asset will be amortized.
The Company estimates the fair value of acquisition-related intangible assets principally based on projections of cash flows that
will arise from identifiable assets of acquired businesses. The projected cash flows are discounted to determine the present value
of the assets at the dates of acquisitions. At December 31, 2015, amortizable intangible assets include existing technology, trade
names, distribution agreements, customer relationships and patents. These amortizable intangible assets are amortized on a
straight-line basis over 7 to 15 years, 10 to 15 years, 4 to 5 years, 5 to 15 years and 5 to 15 years, respectively.
(n)
Goodwill and Other Intangible Assets
Goodwill and unamortizable intangible assets acquired in a business combination and determined to have an indefinite
useful life are not amortized, but instead are tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired, in accordance with the provisions of FASB ASC 350, “Intangibles—
Goodwill and Other”.
For the purpose of its goodwill analysis, the Company has one reporting unit. The Company conducted its annual
impairment analysis in the fourth quarter of fiscal year 2015. The goodwill impairment test is a two-step process. The first step
of the impairment analysis compares the Company’s fair value to its carrying value to determine if there is any indication of
impairment. Step two of the analysis compares the implied fair value of goodwill to its carrying amount in a manner similar to a
purchase price allocation for business combination. If the carrying amount of goodwill exceeds its implied fair value, an
impairment loss is recognized equal to that excess. For indefinite-lived intangible assets if the carrying amount exceeds the fair
value of the asset, the Company would write down the indefinite-lived intangible asset to fair value.
At December 31, 2015, the fair value of the Company significantly exceeded the carrying value. The Company concluded
that none of its goodwill was impaired.
The Company evaluates indefinite-lived intangible assets for impairment annually and when events occur or circumstances
change that may reduce the fair value of the asset below its carrying amount. Events or circumstances that might require an
interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or
competitive activities, loss of key personnel and acts by governments and courts. At December 31, 2015, the Company concluded
that none of its indefinite-lived intangible assets were impaired.
(o)
Impairment of Long-Lived Assets
The Company assesses recoverability of its long-lived assets that are held for use, such as property, plant and equipment
and amortizable intangible assets in accordance with FASB ASC 360, “Property, Plant and Equipment” when events or changes
in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or
an asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated
undiscounted future cash flows expected to be generated by the asset or the asset group. Cash flow projections are based on
trends of historical performance and management’s estimate of future performance. If the carrying amount of the asset or asset
group exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset or asset group exceeds its estimated fair value. At December 31, 2015, the Company concluded that none of its long-
lived assets were impaired.
F-10
(p)
Derivatives
The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates
on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash
flow hedging. The Company does not speculate using derivative instruments. The Company recognizes all derivative instruments
as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships,
changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the
risk being hedged or recognized in AOCI, to the extent the derivative is effective at offsetting the changes in cash flows being
hedged until the hedged item affects earnings.
The Company only enters into derivative contracts that it intends to designate as a hedge of a forecasted transaction or the
variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all hedging
relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging
instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of
the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging
relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in
offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a
cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported as a component of other
comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the
assessment of effectiveness are recognized in current earnings.
The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective
in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow
hedge is de-designated because a forecasted transaction is not probable of occurring, or management determines to remove the
designation of the cash flow hedge.
In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues
to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.
When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes
immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging
relationship.
(q)
Fair Value of Financial Instruments
The carrying values of the Company’s cash and cash equivalents, trade accounts receivable and trade accounts payable
and short-term debt approximate their fair values because of the short maturities of those instruments. The fair value of the
Company’s long-term debt approximates its carrying value and is based on the amount of future cash flows associated with the
debt discounted using current borrowing rates for similar debt instruments of comparable maturity.
Financial reporting standards define a fair value hierarchy that consists of three levels:
(cid:131)
(cid:131)
(cid:131)
Level 1 includes instruments for which quoted prices in active markets for identical assets or liabilities accessible
to the Company at the measurement date.
Level 2 includes instruments for which the valuations are based on quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable
data for substantially the full term of the assets or liabilities.
Level 3 includes valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
(r)
Stock-based Compensation
The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC 718,
“Compensation—Stock Compensation”, which requires it to recognize compensation expense for all stock-based payment
awards made to employees and directors including stock options, restricted stock units, restricted stock units with a market
condition and employee stock purchases (“employee stock purchases”) related to its Employee Stock Purchase Plan (as amended,
F-11
the “ESPP”). The Company issues new shares upon stock option exercises, upon vesting of restricted stock units and restricted
stock units with a market condition, and under the Company’s ESPP.
Stock-based compensation expense recognized is based on the value of the portion of stock-based payment awards that is
ultimately expected to vest and has been reduced for estimated forfeitures. The Company values stock-based payment awards,
except restricted stock units at grant date using the Black-Scholes option-pricing model (“Black-Scholes model”). The Company
values restricted stock units with a market condition using a Monte-Carlo valuation simulation. The determination of fair value
of stock-based payment awards on the date of grant using an option-pricing model or Monte-Carlo valuation simulation is
affected by its stock price as well as assumptions regarding certain variables. These variables include, but are not limited to its
expected stock price volatility over the term of the awards and actual and projected stock option exercise behaviors.
The fair value of restricted stock units are based on the market price of the Company’s stock on the date of grant and are
recorded as compensation expense ratably over the applicable service period, which ranges from one to four years. Unvested
restricted stock units are forfeited in the event of termination of employment with the Company.
Stock-based compensation expense recognized under FASB ASC 718 for the years ended December 31, 2015, 2014 and
2013 consisted of stock-based compensation expense related to stock options, the employee stock purchase plan, and the
restricted stock units and was recorded as a component of cost of product revenues, sales and marketing expenses, general and
administrative expenses, research and development expenses and discontinued operations. Refer to footnote 19 for further details.
(s)
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
“Revenue from Contracts with Customers,” a new accounting standard that provides for a comprehensive model to use in the
accounting for revenue arising from contracts with customers that will replace most existing revenue recognition guidance within
generally accepted accounting principles in the United States. Under this standard, revenue will be recognized to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects
to be entitled in exchange for those goods or services. At its July 2015 meeting, the FASB agreed to defer the mandatory effective
date of ASU 2014-09 one year. Under the one year deferral, the standard will take effect in 2018 for calendar year-end public
entities. The Company is assessing the new standard and has not yet determined the impact to the consolidated financial
statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented
in the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of being presented as an
asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires
retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after
December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company
believes the adoption of this new guidance will not have a material impact on its consolidated financial position or results of
operations.
In July 2015, the FASB issued ASU 2015-11, Simplifying Measurement of Inventory. The update requires measurement of
most inventory “at the lower of cost and net realizable value”, and applies to all entities that recognize inventory within the scope
of ASC 330, except for inventory measured under the last-in, first-out (LIFO) method or the retail inventory method (RIM). ASU
2015-11 requires prospective application and represents a change in accounting principle. The update is effective for fiscal years
beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued.
The Company is evaluating the impact of ASU 2015-11 on its consolidated financial statements and the possibility of early
adoption by the Company.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The
update eliminates the requirement to retrospectively adjust financial statements for measurement-period adjustments that occur
in periods after a business combination. Under the update, measurement-period adjustments are to be calculated as if they were
known at the acquisition date, but are recognized in the reporting period in which they are determined. Additional disclosures
are required about the impact on current-period earnings. ASU 2015-16 requires prospective application to adjustments of
provisional amounts that occur after the effective date. The update is effective for fiscal years beginning after December 15,
2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is evaluating the
impact of ASU 2015-16 on its consolidated financial statements and the possibility of early adoption by the Company.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The update requires
all deferred income taxes to be presented on the balance sheet as noncurrent. The new guidance is intended to simplify financial
F-12
reporting by eliminating the requirement to classify deferred taxes between current and noncurrent. The update is effective for
fiscal years beginning after December 15, 2016. Early adoption is permitted at the beginning of an interim or annual period. The
Company is evaluating the impact of ASU 2015-17 on its consolidated financial statements and the possibility of early adoption
by the Company.
In February 2016, the FASB issued ASU 2016-02, Leases, which is intended to improve financial reporting about leasing
transactions. The update requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations
created by lease terms of more than 12 months. The update is effective for fiscal years beginning after December 15, 2018. The
Company is evaluating the impact of ASU 2016-02 on its consolidated financial statements.
3.
Concentrations
No customer accounted for more than 10% of the revenues for the years ended December 31, 2015, 2014 and 2013. At
December 31, 2015 and 2014, no customer accounted for more than 10% of net accounts receivable.
4.
Accumulated Other Comprehensive Loss
Changes in each component of accumulated other comprehensive loss, net of tax are as follows:
(in thousands)
Foreign
currency
translation
adjustments
Derivatives
qualifying as
hedges
Defined
benefit
pension plans
Total
Balance at December 31, 2013 .............................................. $
1,283 $
(49) $
(3,878) $
(2,644)
Other comprehensive (loss) income before reclassifications ..
Amounts reclassified from AOCI ...........................................
(5,941)
-
(99)
130
114
207
(5,926)
337
Net other comprehensive (loss) income ..................................
(5,941)
31
321
(5,589)
Balance at December 31, 2014 .............................................. $
(4,658) $
(18) $
(3,557) $
(8,233)
Other comprehensive (loss) income before reclassifications ..
Amounts reclassified from AOCI ...........................................
(4,936)
-
(85)
93
1,029
248
(3,992)
341
Other comprehensive (loss) income ........................................
(4,936)
8
1,277
(3,651)
Balance at December 31, 2015 .............................................. $
(9,594) $
(10) $
(2,280) $
(11,884)
The amounts reclassified out of accumulated other comprehensive (loss) income are as follows:
(in thousands)
Amounts Reclassified From AOCI
Derivatives qualifying as hedges
Affected line item in the
Statements of Operations 2015
Year Ended December 31,
2013
2014
Realized loss on derivatives qualifying as hedges .........
$
Income tax ..................................................................... Income tax (benefit) expense
Interest expense
Defined benefit pension plans
Amortization of net losses included in net periodic
pension costs ..................................................................
General and
administrative expenses
Income tax ......................................................................... Income tax (benefit) expense
Total reclassifications ............................................................
$
93 $
-
93
306
(58)
248
341 $
130 $
-
130
259
(52 )
207
337 $
67
-
67
305
(62)
243
310
F-13
5.
Inventories
Inventories consist of the following:
Finished goods ............................................................................................................................. $
Work in process ...........................................................................................................................
Raw materials ...............................................................................................................................
Total ......................................................................................................................................... $
10,957 $
888
10,498
22,343 $
10,138
946
9,447
20,531
December 31, December 31,
2015
2014
(in thousands)
6.
Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, December 31,
2015
2014
Land, buildings and leasehold improvements .............................................................................. $
Machinery and equipment ............................................................................................................
Computer equipment and software...............................................................................................
Furniture and fixtures ...................................................................................................................
Automobiles .................................................................................................................................
Less: accumulated depreciation ...................................................................................................
Property, plant and equipment, net ............................................................................................... $
(in thousands)
2,825 $
10,131
7,503
1,358
103
21,920
(16,018)
5,902 $
2,595
10,102
6,322
1,125
56
20,200
(15,010)
5,190
7.
Acquisitions
The Company completed one acquisition during the year ended December 31, 2015.
HEKA Elektronik
On January 8, 2015, the Company, through its wholly-owned Ealing Scientific Limited and Multi Channel Systems MCS
GmbH (“MCS”) subsidiaries, acquired all of the issued and outstanding shares of HEKA Elektronik (“HEKA”) for approximately
$5.9 million, or $4.5 million, net of cash acquired. Included in the acquisition of HEKA were: HEKA Electronik Dr. Schulze
GmbH, based in Lambrecht, Germany (“HEKA Germany”); HEKA Electronics Incorporated, based in Chester, Nova Scotia,
Canada (“HEKA Canada”); and HEKA Instruments Incorporated, based in Bellmore, New York. The Company funded the
acquisition from its existing cash balances.
F-14
HEKA is a developer, manufacturer and marketer of sophisticated electrophysiology instrumentation and software for
biomedical and industrial research applications. This acquisition is complementary to the electrophysiology line currently offered
by the Company’s wholly-owned Warner Instruments and MCS subsidiaries.
The aggregate purchase price for this acquisition was allocated to tangible and intangible assets acquired as follows:
Tangible assets ....................................................................................................................................................... $
Liabilities assumed .................................................................................................................................................
Net assets ................................................................................................................................................................
(in thousands)
4,165
(2,376)
1,789
Goodwill and intangible assets:
Goodwill.................................................................................................................................................................
Trade name .............................................................................................................................................................
Customer relationships ...........................................................................................................................................
Developed technology ............................................................................................................................................
Non-compete agreements .......................................................................................................................................
Deferred tax liabilities ............................................................................................................................................
Total goodwill and intangible assets, net of tax .....................................................................................................
Acquisition purchase price ..................................................................................................................................... $
1,618
774
1,627
1,338
27
(1,245)
4,139
5,928
Goodwill recorded as a result of the acquisition of HEKA is not deductible for tax purposes.
The results of operations for HEKA have been included in the Company’s consolidated financial statements from the date
of acquisition.
The following consolidated pro forma information is based on the assumption that the acquisition of HEKA occurred on
January 1, 2013. Accordingly, the historical results have been adjusted to reflect amortization expense that would have been
recognized on such a pro forma basis. The pro forma information is presented for comparative purposes only and is not
necessarily indicative of the financial position or results of operations which would have been reported had we completed the
acquisition during these periods or which might be reported in the future.
2015
Year Ended December 31,
2014
(in thousands)
2013
Pro Forma
Revenues ....................................................................................................... $
Net (loss) income ..........................................................................................
108,761 $
(19,027)
114,185 $
2,646
111,246
(1,327)
The Company completed two acquisitions during 2014.
Multi Channel Systems MCS GmbH
On October 1, 2014, the Company, through its wholly-owned Biochrom Limited subsidiary, acquired all of the issued and
outstanding shares of MCS, which has its principal offices in Germany, for approximately $11.2 million, including a working
capital adjustment, or $10.7 million, net of cash acquired. The Company funded the acquisition from its existing cash balances.
MCS is a developer, manufacturer and marketer of in vitro and in vivo electrophysiology instrumentation for extracellular
recording and stimulation. This acquisition is complementary to the in vitro electrophysiology line currently offered by the
Company’s wholly-owned Warner Instruments subsidiary.
F-15
The aggregate purchase price for this acquisition was allocated to tangible and intangible assets acquired as follows:
Tangible assets ....................................................................................................................................................... $
Liabilities assumed .................................................................................................................................................
Net assets ................................................................................................................................................................
(in thousands)
5,070
(1,207)
3,863
Goodwill and intangible assets:
Goodwill.................................................................................................................................................................
Trade name .............................................................................................................................................................
Customer relationships ...........................................................................................................................................
Developed technology ............................................................................................................................................
Non-compete agreements .......................................................................................................................................
Deferred tax liabilities ............................................................................................................................................
Total goodwill and intangible assets, net of tax .....................................................................................................
Acquisition purchase price ..................................................................................................................................... $
4,117
1,008
1,204
2,452
148
(1,603)
7,326
11,189
Goodwill recorded as a result of the acquisition of MCS is not deductible for tax purposes.
At December 31, 2015, an immaterial correction was made to the allocation of the aggregate purchase price to the tangible
and intangible assets acquired to decrease inventory and increase goodwill by $0.4 million. This correction has been reflected in
the table above.
The results of operations for MCS have been included in the Company’s consolidated financial statements from the date
of acquisition.
The following consolidated pro forma information is based on the assumption that the acquisition of MCS occurred on
January 1, 2013. Accordingly, the historical results have been adjusted to reflect amortization expense that would have been
recognized on such a pro forma basis. The pro forma information is presented for comparative purposes only and is not
necessarily indicative of the financial position or results of operations which would have been reported had we completed the
acquisition during these periods or which might be reported in the future.
Year Ended December 31,
2014
2013
(in thousands)
Pro Forma
Revenues .................................................................................................................................. $
Net income (loss) .....................................................................................................................
114,066 $
2,600
114,300
(672)
Triangle BioSystems, Inc.
On October 1, 2014, the Company acquired all of the issued and outstanding shares of Triangle BioSystems, Inc. (“TBSI”),
which has its principal offices in North Carolina, for approximately $2.2 million, including a working capital adjustment, or $1.7
million, net of cash acquired. The Company funded the acquisition from borrowings under its credit facility.
TBSI is a developer, manufacturer and marketer of wireless neural interface equipment to aid in vivo neuroscience research,
especially in the fields of electrophysiology, psychology, neurology and pharmacology. This acquisition is complementary to the
behavioral neuroscience lines currently offered by the Company’s wholly-owned Panlab and Coulbourn subsidiaries.
F-16
The aggregate purchase price for this acquisition was allocated to tangible and intangible assets acquired as follows:
Tangible assets ....................................................................................................................................................... $
Liabilities assumed .................................................................................................................................................
Net assets ................................................................................................................................................................
(in thousands)
1,278
(530)
748
Goodwill and intangible assets:
Goodwill.................................................................................................................................................................
Trade name .............................................................................................................................................................
Customer relationships ...........................................................................................................................................
Developed technology ............................................................................................................................................
Non-compete agreements .......................................................................................................................................
Deferred tax liabilities ............................................................................................................................................
Total goodwill and intangible assets, net of tax .....................................................................................................
Acquisition purchase price ..................................................................................................................................... $
946
143
308
363
30
(325)
1,465
2,213
The results of operations for TBSI have been included in the Company’s consolidated financial statements from the date
of acquisition. The Company considers this acquisition immaterial for the purposes of proforma financial statement disclosures.
Goodwill recorded as a result of the acquisition of TBSI is not deductible for tax purposes.
Direct acquisition costs recorded in other expense, net in the Company’s consolidated statements of operations were $1.2
million, $1.1 million and $0 for the years ended December 31, 2015, 2014 and 2013, respectively.
8.
Discontinued Operations
UBI
In September 2008, the Company completed the sale of assets of its Union Biometrica Division (“UBI”) to UBIO
Acquisition Company. During 2013, the Company received earn-out payments, including interest, from UBIO Acquisition
Company, of $1.8 million related to the 2008 acquisition. The Company received its final payment under the earn-out obligation
from UBIO Acquisition Company in October 2013.
Biostage (f/k/a Harvard Apparatus Regenerative Technology, Inc.)
On November 1, 2013, the spin-off of Harvard Apparatus Regenerative Technology, Inc., now known as Biostage, Inc.
(“Biostage”), from the Company was completed. Through the spin-off date, the historical operations of HART were reported as
continuing operations in the consolidated statements of operations of the Company. Following the spin-off, the historical
operations of Biostage have been reclassified and reported as discontinued operations for all periods presented. As a result of the
spin-off and related separation, Biostage became an independent company that operates the regenerative medicine business
previously owned by Harvard Bioscience. The spin-off was completed through the distribution to Harvard Bioscience’s
stockholders of record all of the shares of common stock of Biostage (the “Distribution”). In the Distribution, the Company
distributed to its stockholders one share of Biostage common stock for every four shares of Harvard Bioscience common stock
outstanding as of the close of business on October 21, 2013, the record date for the Distribution.
Effective with the spin-off, the Company contributed $15.0 million in cash to Biostage to fund its operations. In addition,
the Company transferred approximately $0.9 million in assets, made up primarily of property, plant and equipment, to Biostage
as part of the spin-off.
Harvard Bioscience intends for the Distribution and related separation, taken together, to qualify as a reorganization
pursuant to which no gain or loss is recognized by Harvard Bioscience or its stockholders for federal income tax purposes under
Sections 355, 368(a)(1)(D) and related provisions of the Internal Revenue Code. On June 28, 2013, Harvard Bioscience received
a Supplemental Ruling to the Private Letter Ruling dated March 22, 2013 from the IRS to the effect that, among other things, the
spin-off will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Section 355 and 368(a)(1)(D) of
the Internal Revenue Code continuing in effect. Harvard Bioscience has also received an opinion from its outside tax advisor to
such effect. In connection with the ruling and the opinion, Harvard Bioscience made certain representations regarding it and its
business. The Company and Biostage have each agreed that it will not take or fail to take any action which prevents or could
reasonably be expected to prevent the tax-free status of the spin-off. Biostage also agreed to certain specific restrictions that
F-17
expired two years following the Distribution, and which were intended to preserve the tax-free status of the contribution and the
Distribution.
In addition, current U.S. federal income tax law creates a presumption that the spin-off of Biostage would be taxable to the
Company, but not its stockholders, if such spin-off is part of a “plan or series of related transactions” pursuant to which one or
more persons acquire directly or indirectly stock representing a 50% or greater interest (by vote or value) in the Company or
Biostage. Acquisitions that occur during the four-year period that begins two years before the date of the spin-off are presumed
to occur pursuant to a plan or series of related transactions, unless it is established that the acquisition is not pursuant to a plan
or series of transactions that includes the spin-off. U.S. Treasury regulations currently in effect generally provide that whether
an acquisition and a spin-off are part of a plan is determined based on all of the facts and circumstances, including, but not limited
to, specific factors described in the U.S. Treasury regulations. In addition, the U.S. Treasury regulations provide several “safe
harbors” for acquisitions that are not considered to be part of a plan. These rules limited the Company’s ability during the two-
year period following the spin-off to enter into certain transactions that may be advantageous to the Company and its
stockholders, particularly issuing equity securities to satisfy financing needs, repurchasing equity securities, disposing of certain
assets, engaging in mergers and acquisitions, and, under certain circumstances, acquiring businesses or assets with equity
securities or agreeing to be acquired.
The following table sets forth the impact of discontinued operations on the Company’s consolidated statements of
operations for the year ended December 31, 2013.
Gain on disposal of discontinued operations, UBI ................................................................................................. $
(Loss) from discontinued operations, Biostage ......................................................................................................
Income tax (benefit) ...............................................................................................................................................
(Loss) from discontinued operations, net of tax ..................................................................................................... $
Year Ended
December 31,
2013
(in thousands)
440
(4,861)
(1,868)
(2,553)
9.
Goodwill and Other Intangible Assets
Intangible assets consist of the following:
December 31, 2015 December 31, 2014
(in thousands)
Weighted
Average
Life
(a)
Amortizable intangible assets:
Existing technology ................................................ $ 16,022 $
7,636
Trade names ...........................................................
Distribution agreements/customer relationships .... 23,676
Patents ....................................................................
245
Total amortizable intangible assets ........................ 47,579 $
Gross
Accumulated
Amortization Gross
(11,686) $ 15,538 $
7,114
(3,076)
(11,849) 22,730
256
(26,707) 45,638 $
(96)
Accumulated
Amortization
(11,198)
(2,557)
(10,681)
(49)
(24,485)
7.3 Years
9.0 Years
9.9 Years
3.2 Years
Indefinite-lived intangible assets:
Goodwill................................................................. 40,357
Other indefinite-lived intangible assets ..................
1,223
Total goodwill and other indefinite-lived
intangible assets .................................................. 41,580
Total intangible assets ............................................ $ 89,159
39,822
1,252
41,074
$ 86,712
(a) Weighted average life as of December 31, 2015.
F-18
The change in the carrying amount of goodwill for the year ended December 31, 2015 is as follows:
Balance at December 31, 2013 ............................................................................................................................... $
Goodwill arising from business combination .....................................................................................................
Effect of change in currency translation .............................................................................................................
Balance at December 31, 2014 ...............................................................................................................................
Goodwill arising from business combinations ...................................................................................................
Adjustment to purchase price allocation of prior year acquisition .....................................................................
Effect of change in currency translation .............................................................................................................
Balance at December 31, 2015 ............................................................................................................................... $
(in thousands)
36,605
4,691
(1,474)
39,822
1,618
372
(1,455)
40,357
Intangible asset amortization expense was $2.8 million, $2.6 million and $2.6 million for the years ended December 31,
2015, 2014 and 2013, respectively. Amortization expense of existing amortizable intangible assets is currently estimated to be
$2.8 million for the year ending December 31, 2016, $2.7 million for the year ending December 31, 2017, $2.5 million for the
year ending December 31, 2018, $2.3 million for the year ending December 31, 2019 and $2.2 million for the year ending
December 31, 2020.
10.
Restructuring and Other Exit Costs
Q4 2015 Restructuring Plan
The Company committed to a restructuring plan on October 27, 2015, which included eliminating certain positions
made redundant as a result of its site consolidations, as well as a realignment of its commercial sales team. During the year ended
December 31, 2015, the Company recorded restructuring charges related to this plan of approximately $0.2 million. Payments
related to this plan are expected to be made through the second quarter of 2016. Activity and liability balances related to these
charges were as follows:
Restructuring charges ............................................................................................................................................. $
Cash payments .......................................................................................................................................................
Restructuring balance at December 31, 2015 ......................................................................................................... $
Severance
Costs
(in thousands)
200
(110)
90
Q2 2015 Restructuring Plan
During the second quarter of 2015, management of Harvard Bioscience initiated a plan to consolidate the manufacturing
operations of HEKA Canada to HEKA Germany in order to create organizational efficiencies. No further charges are expected
to be incurred on this matter. At December 31, 2015, the Company has no remaining liability related to this plan on its balance
sheet. Activity and liability balances related to these charges were as follows:
Restructuring charges ........................................................................................ $
Cash payments ..................................................................................................
Restructuring balance at December 31, 2015 .................................................... $
14
(14)
-
34 $
(34)
- $
48
(48)
-
Severance
Costs
Other
(in thousands)
Total
F-19
Q1 2015 Restructuring Plan
During the first quarter of 2015, management of Harvard Bioscience initiated a plan to relocate certain manufacturing
operations in order to create organizational efficiencies and reduce operating expenses. The 2015 restructuring plan included
plans to consolidate the manufacturing operations of its Coulbourn subsidiary to its headquarters in Holliston, MA. During the
year ended December 31, 2015, the Company recorded restructuring charges related to this plan of approximately $0.2 million.
Payments related to this plan are expected to be made through the first quarter of 2016. Activity and liability balances related to
these charges were as follows:
Severance
Costs
Other
(in thousands)
Total
Restructuring charges ........................................................................................ $
Non-cash reversal of restructuring charges .......................................................
Cash payments ..................................................................................................
Restructuring balance at December 31, 2015 .................................................... $
126
(6)
(109)
11
45 $
-
(45)
- $
171
(6)
(154)
11
2014 Restructuring Plan
During the fourth quarter of 2014, management of Harvard Bioscience initiated a plan to relocate certain distribution and
manufacturing operations in order to create organizational efficiencies and reduce operating expenses. The 2014 restructuring
plan included plans to relocate the distribution operations of the Company’s Denville Scientific subsidiary from New Jersey to
North Carolina, as well as consolidating the manufacturing operations of its Biochrom subsidiary to its headquarters in Holliston,
MA. Payments related to this plan are expected to be made through the first quarter of 2016. Activity and liability balances
related to these charges were as follows:
Severance
Costs
Other
(in thousands)
Total
Restructuring charges ........................................................................................ $
Cash payments ..................................................................................................
Restructuring balance at December 31, 2014 ....................................................
Restructuring charges ........................................................................................
Non-cash reversal of restructuring charges .......................................................
Cash payments ..................................................................................................
Effect of change in currency translation ............................................................
Restructuring balance at December 31, 2015 .................................................... $
655 $
(29)
626
94
(79)
(600)
(10)
31 $
- $
-
-
360
-
(360)
-
- $
655
(29)
626
454
(79)
(960)
(10)
31
2013 Restructuring Plan
During the fourth quarter of 2013, the management of Harvard Bioscience initiated a plan to realign global operations to
improve organizational efficiencies and reduce operating expenses throughout the Company. The plan included an approximately
13% reduction in the workforce, as well as the elimination of the position of Chief Operating Officer. No further charges are
expected to be incurred on this matter. At December 31, 2014, the Company had no remaining liability related to this plan on its
balance sheet. Activity and liability balances related to these charges were as follows:
Severance
and
Fixed Asset
Related Costs Write Offs
Other
Total
Restructuring charges .............................................................. $
Cash payments ........................................................................
Restructuring balance at December 31, 2013 ..........................
Restructuring charges ..............................................................
Non-cash reversal of restructuring charges .............................
Cash payments ........................................................................
Restructuring balance at December 31, 2014 .......................... $
2,100 $
(666 )
1,434
199
(117 )
(1,516 )
- $
(in thousands)
- $
-
-
13
(13)
-
- $
- $
-
-
293
-
(293)
- $
2,100
(666)
1,434
505
(130)
(1,809)
-
F-20
As part of the fourth quarter 2013 restructuring plan, the Company decided to close one of its facilities in the United
Kingdom. During the fourth quarter of 2014, the facility was sold. The gain of $0.8 million was recorded in a separate line in the
Company’s statements of operations within operating expenses.
During the third quarter of 2013, the management of Harvard Bioscience initiated a plan to reduce operating expenses at
one of its foreign subsidiaries. No further charges are expected to be incurred on this matter. As of December 31, 2013, the
Company had no remaining liability related to this plan on its balance sheet. Activity and liability balances related to these
charges were as follows:
Restructuring charges ........................................................................................................................................ $
Cash payments ..................................................................................................................................................
Restructuring balance at December 31, 2013 .................................................................................................... $
96
(96)
-
2012 Restructuring Plan
During 2012, the management of Harvard Bioscience initiated a plan to reduce operating expenses at one of its foreign
subsidiaries. No further charges are expected to be incurred on this matter. At December 31, 2014, the Company had no remaining
liability related to this plan on its balance sheet. Activity and liability balances related to these charges were as follows:
Severance
and Related Costs
(in thousands)
Severance
and
Related Costs
Other
(in thousands)
Total
Restructuring balance at December 31, 2012 .................................................... $
Cash payments ..................................................................................................
Non-cash reversal of restructuring charges .......................................................
Restructuring balance at December 31, 2013 ....................................................
Non-cash reversal of restructuring charges .......................................................
Restructuring balance at December 31, 2014 .................................................... $
133 $
(84)
(46)
3
(3)
- $
11 $
(11)
-
-
-
- $
144
(95)
(46)
3
(3)
-
Aggregate net restructuring charges for the years ended December 31, 2015, 2014 and 2013 were as follows:
2015
Year Ended December 31,
2014
(in thousands)
2013
Restructuring charges ........................................................................................ $
788 $
1,027 $
2,150
11.
Long Term Debt
On August 7, 2009, the Company entered into an Amended and Restated Revolving Credit Loan Agreement related to a
$20.0 million revolving credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman &
Co as lenders (as amended, the “2009 Credit Agreement”). On September 30, 2011, the Company entered into the First
Amendment to the Amended and Restated Revolving Credit Loan Agreement (the “First Amendment”) with Bank of America
as agent, and Bank of America and Brown Brothers Harriman & Co as lenders. The First Amendment extended the maturity date
of the credit facility to August 7, 2013 and reduced the interest rate to the London Interbank Offered Rate plus 3.0%. On
October 4, 2012, the Company entered into the Second Amendment to the Amended and Restated Revolving Credit Loan
Agreement (the “Second Amendment”) with Bank of America as agent, and Bank of America and Brown Brothers Harriman &
Co as lenders. The Second Amendment extended the maturity date of the credit facility to August 7, 2014.
On March 29, 2013, the Company entered into a Second Amended and Restated Revolving Credit Agreement (as amended,
the “Credit Agreement”) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co as lenders,
that amended and restated the 2009 Credit Agreement. The Credit Agreement converted the Company’s existing outstanding
revolving advances into a term loan in the principal amount of $15.0 million (the “Term Loan”), provides a revolving credit
facility in the maximum principal amount of $25.0 million (“Revolving Line”) and provides a delayed draw term loan of up to
$15.0 million (the “DDTL”) to fund capital contributions to the Company’s former subsidiary, Biostage. The maximum amount
F-21
available under the Credit Agreement is $50.0 million as borrowings against the DDTL in excess of $10.0 million results in a
dollar for dollar reduction in the Revolving Line capacity. The Revolving Line, Term Loan and DDTL each have a maturity date
of March 29, 2018 (the maturity date of the Revolving Line was extended from March 29, 2016 in connection with the Third
Amendment discussed below).
On October 31, 2013, the Company amended the Credit Agreement to reduce the DDTL from up to $15.0 million to up to
$10.0 million and allow for an additional $5.0 million to be available for drawing as advances under the Revolving Line.
On April 24, 2015, the Company entered into the Third Amendment to the Second Amended and Restated Credit
Agreement (the “Third Amendment”). The Third Amendment extended the maturity date of the Revolving Line to March 29,
2018 and reduced the interest rates on the Revolving Line, Term Loan and DDTL. Borrowings under the Term Loan and the
DDTL accrued interest at a rate based on either the effective London Interbank Offered Rate (LIBOR) for certain interest periods
selected by the Company, or a daily floating rate based on the British Bankers’ Association (BBA) LIBOR as published by
Reuters (or other commercially available source providing quotations of BBA LIBOR), plus in either case, a margin of 2.75%.
Additionally, the Revolving Line accrued interest at a rate based on either the effective LIBOR for certain interest periods selected
by the Company, or a daily floating rate based on the BBA LIBOR, plus in either case, a margin of 2.25%. The Company was
required to fix the rate of interest on at least 50% of the Term Loan and the DDTL through the purchase of interest rate swaps.
The Term Loan and DDTL each have interest payments due at the end of the applicable LIBOR period, or monthly with respect
to BBA LIBOR borrowings, and principal payments due quarterly. The Revolving Line has interest payments due at the end of
the applicable LIBOR period, or monthly with respect to BBA LIBOR borrowings.
On June 30, 2015, the Company entered into the Fourth Amendment to the Second Amended and Restated Credit
Agreement, which amended the Company’s quarterly minimum fixed charge coverage financial covenant.
On November 5, 2015, the Company entered into the Fifth Amendment to the Second Amended and Restated Credit
Agreement, which eliminated the Company’s 2015 fourth quarter minimum fixed charge coverage financial covenant
requirement. As part of the agreement, the maximum principal amount on the Revolving Line was reduced to $10.0 million until
June 30, 2016, at which time, the maximum principal amount will be restored to $25.0 million, as long as the Company remains
in compliance with all covenants.
On March 9, 2016, the Company entered into the Sixth Amendment to the Second Amended and Restated Credit
Agreement, which amended the principal payment amortization of the Term Loan and DDTL to five years, as well as amended
the Company’s quarterly minimum fixed charge coverage financial covenant.
The loans evidenced by the Credit Agreement, or the Loans, are guaranteed by all of the Company’s direct and indirect
domestic subsidiaries, and secured by substantially all of the assets of the Company and the guarantors. The Loans are subject to
restrictive covenants under the Credit Agreement, and financial covenants that require the Company and its subsidiaries to
maintain certain financial ratios on a consolidated basis, including a maximum leverage, minimum fixed charge coverage and
minimum working capital. Prepayment of the Loans is allowed by the Credit Agreement at any time during the terms of the
Loans. The Loans also contain limitations on the Company’s ability to incur additional indebtedness and requires lender approval
for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions
funded solely with equity in excess of $10.0 million.
As of December 31, 2015 and December 31, 2014, the Company had borrowings of $18.9 million and $21.5 million,
respectively, outstanding under its Credit Agreement. As of December 31, 2015, the Company was in compliance with all
financial covenants contained in the Credit Agreement, was subject to covenant and working capital borrowing restrictions and
had available borrowing capacity under its Credit Agreement of $2.3 million.
As of December 31, 2015, the weighted effective interest rates, net of the impact of the Company’s interest rate swaps, on
its Term Loan, DDTL and Revolving Line borrowings were 3.96%, 3.55% and 2.67%, respectively.
F-22
As of December 31, 2015 and December 31, 2014, the Company’s borrowings were comprised of:
December 31, December 31,
2015
2014
(in thousands)
Long-term debt:
Term loan ................................................................................................................................. $
DDTL .......................................................................................................................................
Revolving line ..........................................................................................................................
Total debt .....................................................................................................................................
Less: current installments .........................................................................................................
Long-term debt ............................................................................................................................. $
6,750 $
5,500
6,650
18,900
(2,450)
16,450 $
9,750
7,500
4,200
21,450
(5,000)
16,450
The aggregate amounts of debt maturing during the next five years are as follows:
(in thousands)
2016 ........................................................................................................................................................................ $
2017 ........................................................................................................................................................................
2018 ........................................................................................................................................................................
2019 ........................................................................................................................................................................
2020 ........................................................................................................................................................................
Total ....................................................................................................................................................................... $
2,450
2,450
14,000
-
-
18,900
12.
Derivatives
The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates
on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash
flow hedging. The Company does not speculate using derivative instruments.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to
credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.
When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the
Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the
Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit
risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their
credit profile.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The
market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk
management control systems to monitor interest rate risk attributable to both the Company’s outstanding or forecasted debt
obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of
analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the
Company’s future cash flows.
The Company uses variable-rate London Interbank Offered Rate (LIBOR) debt to finance its operations. The debt
obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes that it
is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into LIBOR
based interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate
of LIBOR. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms
of the interest rate swaps, the Company receives LIBOR based variable interest rate payments and makes fixed interest rate
payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged. In accordance with its
Credit Agreement, the Company was required to fix the rate of interest on at least 50% of its Term Loan and the DDTL through
the purchase of interest rate swaps. On June 5, 2013, the Company entered into an interest rate swap contract with an original
notional amount of $15.0 million and a maturity date of March 29, 2018 in order to hedge the risk of changes in the effective
F-23
benchmark interest rate (LIBOR) associated with the Company’s Term Loan. On November 29, 2013, the Company entered into
a second interest rate swap contract with an original notional amount of $5.0 million and a maturity date of March 29, 2018 in
order to hedge the risk of changes in the effective benchmark interest rate (LIBOR) associated with the DDTL. The notional
amount of the Company’s derivative instruments as of December 31, 2015 was $9.5 million. The Term Loan swap contract
effectively converted specific variable-rate debt into fixed-rate debt and fixed the LIBOR rate associated with the Term Loan at
0.96% plus a bank margin of 3.0%. The DDTL swap contract effectively converted specific variable-rate debt into fixed-rate
debt and fixed the LIBOR rate associated with the Term Loan at 0.93% plus a bank margin of 3.0%.The interest rate swaps were
designated as cash flow hedges in accordance with ASC 815, Derivatives and Hedging.
The following table presents the notional amount and fair value of the Company’s derivative instruments as of December
31, 2015 and December 31, 2014.
December 31, 2015
Notional Amount
December 31, 2015
Fair Value (a)
Derivatives designated as hedging instruments
under ASC 815
Interest rate swaps ......................................................... Other liabilities-non current $
Balance sheet classification
(in thousands)
9,500 $
(10 )
Derivatives designated as hedging instruments
under ASC 815
Interest rate swaps ......................................................... Other liabilities-non current $
Balance sheet classification
(in thousands)
13,500 $
(18 )
December 31, 2014
Notional Amount
December 31, 2014
Fair Value (a)
(a) See Note 13 for the fair value measurements related to these financial instruments.
All of the Company’s derivative instruments are designated as hedging instruments.
The Company has structured its interest rate swap agreements to be 100% effective and as a result, there was no impact to
earnings resulting from hedge ineffectiveness. Changes in the fair value of interest rate swaps designated as hedging instruments
that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations are reported in
accumulated other comprehensive income (“AOCI”). These amounts subsequently are reclassified into interest expense as a yield
adjustment of the hedged interest payments in the same period in which the related interest affects earnings. The Company’s
interest rate swap agreement was deemed to be fully effective in accordance with ASC 815, and, as such, unrealized gains and
losses related to these derivatives were recorded as AOCI.
The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their
classification within comprehensive loss for the years ended December 31, 2015, 2014 and 2013:
Derivatives in Hedging Relationships
Amount of gain or (loss) recognized in OCI
on derivative (effective portion)
Year Ended December 31,
2014
(in thousands)
2013
2015
Interest rate swaps ............................................................................................. $
(85) $
(99) $
(116)
The following table summarizes the reclassifications out of accumulated other comprehensive loss for the years ended
December 31, 2015, 2014 and 2013:
Details about AOCI
Components
Amount reclassified from AOCI into income (effective portion)
Year Ended December 31,
2014
(in thousands)
2013
2015
Location of amount
reclassified from AOCI
into income (effective portion)
Interest rate swaps ............. $
93 $
130 $
67
Interest expense
F-24
As of December 31, 2015, $24,000 of deferred losses on derivative instruments accumulated in AOCI are expected to be
reclassified to earnings during the next twelve months. Transactions and events expected to occur over the next twelve months
that will necessitate reclassifying these derivatives’ losses to earnings include the repricing of variable-rate debt. There were no
cash flow hedges discontinued during 2015 or 2014.
13.
Fair Value Measurements
Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad
levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3—Unobservable inputs based on the Company’s own assumptions.
The following tables present the fair value hierarchy for those liabilities measured at fair value on a recurring basis:
(In thousands)
Liabilities:
Fair Value as of December 31, 2015
Level 1
Level 2
Level 3
Total
Interest rate swap agreements ............................................. $
- $
10 $
- $
10
(In thousands)
Liabilities:
Fair Value as of December 31, 2014
Level 1
Level 2
Level 3
Total
Interest rate swap agreements ............................................. $
- $
18 $
- $
18
The Company uses the market approach technique to value its financial liabilities. The Company’s financial liabilities
carried at fair value include derivative instruments used to hedge the Company’s interest rate risks. The fair value of the
Company’s interest rate swap agreements was based on LIBOR yield curves at the reporting date.
14.
Leases
The Company has noncancelable operating leases for office and warehouse space expiring at various dates through 2020
and thereafter. Rent expense, which is recorded on a straight-line basis, was $2.1 million, $1.7 million and $1.3 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year at December
31, 2015, are as follows:
2016 ........................................................................................................................................................................ $
2017 ........................................................................................................................................................................
2018 ........................................................................................................................................................................
2019 ........................................................................................................................................................................
2020 ........................................................................................................................................................................
Thereafter ...............................................................................................................................................................
Net minimum lease payments ................................................................................................................................ $
Leases
(in thousands)
1,843
1,749
1,727
1,526
1,527
4,193
12,565
Operating
F-25
15.
Accrued Expenses
Accrued expenses consist of:
Accrued compensation and payroll .............................................................................................. $
Accrued professional fees ............................................................................................................
Accrued severance .......................................................................................................................
Warranty costs ..............................................................................................................................
Other ............................................................................................................................................
Total ............................................................................................................................................. $
16.
Income Tax
December 31,
2015
2014
(in thousands)
1,264 $
1,055
132
147
1,423
4,021 $
1,824
761
626
240
1,001
4,452
Income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 2015, 2014
and 2013 consisted of:
2015
Year Ended December 31,
2014
(in thousands)
2013
Current income tax expense (benefit):
Federal and state ............................................................................................ $
Foreign ..........................................................................................................
Deferred income tax expense (benefit):
Federal and state ............................................................................................
Foreign ..........................................................................................................
Total income tax expense (benefit) ................................................................... $
(4) $
677
673
15,598
(840)
14,758
15,431 $
27 $
424
451
1,793
(182)
1,611
2,062 $
47
413
460
(594)
(154)
(748)
(288)
Income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 differed from the amount computed
by applying the U.S. federal income tax rate of 34% to pre-tax continuing operations income as a result of the following:
2015
Year Ended December 31,
2014
(in thousands)
2013
(1,227) $
1,503 $
147
Computed "expected" income tax (benefit) expense ......................................... $
Increase (decrease) in income taxes resulting from:
Permanent differences, net ............................................................................
Foreign tax rate differential ...........................................................................
State income taxes, net of federal income tax benefit ...................................
Non-deductible stock compensation expense ................................................
Impact of prior year pension deductions .......................................................
Impact of foreign rate change ........................................................................
Tax credits .....................................................................................................
Change in reserve for uncertain tax position .................................................
Impact of change to prior year tax accruals ...................................................
Change in valuation allowance allocated to income
32
(12)
82
(161)
-
89
(169)
35
370
(93)
(364)
22
67
-
-
(385)
-
-
tax expense (benefit) .................................................................................
Other..............................................................................................................
Total income tax expense (benefit) ................................................................... $
16,401
(9)
15,431 $
1,346
(34)
2,062 $
482
(64)
6
1
(294)
-
(615)
-
-
31
18
(288)
Certain prior year amounts in the above table have been reclassified for consistency with the current year presentation.
These reclassifications had no effect on the Company’s consolidated financial statements.
F-26
Income tax expense (benefit) is based on the following pre-tax income from continuing operations for the years ended
December 31, 2015, 2014 and 2013:
2015
Year Ended December 31,
2014
(in thousands)
2013
Domestic ........................................................................................................... $
Foreign ..............................................................................................................
Total .................................................................................................................. $
(3,331) $
(277)
(3,608) $
1,846 $
2,571
4,417 $
(2,549)
2,984
435
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax
liabilities from continuing operations at December 31, 2015 and 2014 are as follows:
Deferred tax assets:
Accounts receivable ................................................................................................................. $
Inventory ..................................................................................................................................
Operating loss and credit carryforwards...................................................................................
Accrued expenses .....................................................................................................................
Pension liabilities .....................................................................................................................
Contingent consideration ..........................................................................................................
Tax credits on repatriation ........................................................................................................
Other assets ..............................................................................................................................
Total gross deferred assets .......................................................................................................
Less: valuation allowance ........................................................................................................
Deferred tax assets ....................................................................................................................... $
Deferred tax liabilities:
Indefinite-lived intangible assets .............................................................................................. $
Definite-lived intangible assets ................................................................................................
Property, plant and equipment .................................................................................................
Accrued tax liability on repatriation .........................................................................................
Other accrued liabilities ...........................................................................................................
Total deferred tax liabilities .........................................................................................................
Net deferred tax (liabilities) assets ............................................................................................... $
December 31,
2015
2014
(in thousands)
45 $
1,447
14,456
125
535
2,987
1,728
2,079
23,402
(18,823)
4,579 $
4,593 $
2,587
-
1,728
655
9,563
(4,984) $
45
1,416
12,803
188
889
2,806
-
1,832
19,979
(2,423)
17,556
4,291
1,730
27
-
383
6,431
11,125
The Company’s deferred tax assets in the table above as of December 31, 2015 and December 31, 2014, do not include
reductions of $0.9 million and $0.2 million, respectively, related to excess tax benefits from the exercise of employee stock
options that are a component of net operating losses as these benefits can only be recognized when the related tax deduction
reduces income taxes payable.
The amounts recorded as deferred tax assets as of December 31, 2015 and 2014 represent the amount of tax benefits of
existing deductible temporary differences and carryforwards that are more likely than not to be realized through the generation
of sufficient future taxable income within the carryforward period. Significant management judgment is required in determining
any valuation allowance recorded against deferred tax assets and liabilities. During the year ended December 31, 2015, the
Company determined that it was more likely than not that its U.S. deferred tax assets would not be realized and therefore recorded
a net increase to the valuation allowance of $16.4 million to offset U.S. deferred tax assets net of deferred tax liabilities except
for certain indefinite-lived intangible assets. The Company’s judgment was based on consideration of all available evidence.
At December 31, 2015, the Company had federal and state net operating loss carryforwards available to offset future
taxable income of approximately $29.6 million. The operating loss carryforwards will begin to expire in 2016. Furthermore, the
Company had foreign operating loss carryforwards to offset future taxable income of approximately $7.2 million, which can be
carried forward indefinitely. The Company also had federal and state general business and minimum tax credit carryforwards
available to reduce future federal and state regular income taxes of approximately $4.6 million, which begin to expire in 2016.
Approximately $5.4 million of net operating losses are subject to an annual limitation of $0.7 million imposed by change in
F-27
ownership provisions of Section 382 of the Internal Revenue Code. As mentioned above, these net operating loss and credit
carryforwards have full valuation allowances set up against them.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $48.7 million, $51.9 million,
and $49.2 million at December 31, 2015, 2014 and 2013, respectively. At December 31, 2015 and 2014, cash and cash equivalents
held by the Company’s foreign subsidiaries was $5.7 million and $12.7 million, respectively. Funds held by the Company’s
foreign subsidiaries are not available for domestic operations unless the funds are repatriated. If the Company planned to or did
repatriate these funds, then U.S. federal and state income taxes would have to be recorded on such amounts. The Company’s
reinvestment determination is based on the future operational and capital requirements of its U.S. and non-U.S. operations. As
of December 31, 2015, the Company determined that the assertion of permanent reinvestment at its foreign subsidiaries in Canada
and France was no longer appropriate and it intends to repatriate approximately $3.2 million. The total tax liability associated
with the intention to repatriate undistributed earnings in Canada and France is estimated to be approximately $1.7 million,
however the liability is expected to be entirely offset by the foreign tax credits generated from the repatriation. The Company
currently has no plans and does not intend to repatriate any of its undistributed foreign earnings in any other countries outside of
Canada and France. These balances are considered permanently reinvested and will be used for foreign items including foreign
acquisitions, capital investments, pension obligations and operations. It is impracticable to estimate the total tax liability, if any,
which would be created by the future distribution of these earnings. In October of 2014, the Company acquired all issued and
outstanding shares of MCS, a German manufacturer, and utilized approximately $11.2 million of foreign cash on hand to do so.
In January of 2015, the Company acquired all issued and outstanding shares of HEKA, a manufacturer with operations in
Germany and Canada, utilizing approximately $5.9 million of foreign cash on hand. In 2015, the Company also used $0.3 million
of foreign cash on hand for capital improvements at AHN, a German manufacturer.
During 2010, the Company completed an analysis of its research and development credit carryforwards and determined
that due to certain documentation requirements to substantiate the credit, an uncertain tax liability of $0.2 million should be
recorded. No penalties or interest have been accrued on this liability because the credits have not yet been utilized. Also, as part
of the acquisition of TBSI, the Company acquired approximately $59,000 of uncertain tax liabilities related to certain potentially
nondeductible expenses reflected in previously filed pre-acquisition tax returns. In 2015, the Company reviewed prior year
transfer pricing on intercompany transactions including services and determined the need for a tax reserve in the amount of
$35,000. Tax attribute carryforwards would be adjusted upon settlement of these liabilities, except those relating to pre-
acquisition tax returns, which would require cash payments. A reconciliation of uncertain tax liabilities is as follows:
Balance at December 31, 2013 ............................................................................................................................... $
Additions based on tax positions of acquired entities ............................................................................................
Balance at December 31, 2014 ...............................................................................................................................
Additions based on tax positions of prior years .....................................................................................................
Balance at December 31, 2015 ............................................................................................................................... $
(in thousands)
191
59
250
35
285
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and
foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for
years before 2011. During 2013, the Company closed its IRS audit for the 2009 and 2010 tax years. There were no material
adjustments. During 2014 the Company closed its audit for tax years 2009 and 2010 by the Massachusetts Department of Revenue
with no material adjustments. The Company’s Canadian subsidiary audit by the Canadian Revenue Agency for the 2011 tax year
was closed in February 2015 with no adjustments. During 2015, one of the Company’s German subsidiaries began an income
tax audit. As of December 31, 2015, there were no material adjustments. In June 2015, the Company’s acquired German
subsidiary, HEKA, closed an income tax audit for 2008-2012 with no material adjustments. Also, HEKA began an income tax
audit for tax years 2013-2014 in November 2015. As of December 31, 2015, no issues have been raised. The Company is not
aware of any tax audits in other major jurisdictions.
During 2013, the Company spun off its Biostage subsidiary. All related carryforward tax attributes remained with Harvard
Bioscience.
F-28
17.
Employee Benefit Plans
The Company sponsors profit sharing retirement plans for its U.S. employees, which includes employee savings plans
established under Section 401(k) of the U.S. Internal Revenue Code (the “401(k) Plans”). The 401(k) Plans cover substantially
all full-time employees who meet certain eligibility requirements. Contributions to the profit sharing retirement plans are at the
discretion of management. For the years ended December 31, 2015, 2014 and 2013, the Company contributed approximately
$0.5 million, $0.5 million and $0.6 million, respectively, to the 401(k) Plans.
Certain of the Company’s subsidiaries in the United Kingdom, Harvard Apparatus Limited and Biochrom, maintain
contributory, defined benefit or defined contribution pension plans for substantially all of their employees. As of December 31,
2014, the principal employer of the Harvard Apparatus Limited pension plan was changed from Harvard Apparatus Limited to
Biochrom. As of December 31, 2014, these defined benefit pension plans were closed to new employees, as well as closed to the
future accrual of benefits for existing employees. The provisions of FASB ASC 715-20 require that the funded status of the
Company’s pension plans be recognized in its balance sheet. FASB ASC 715-20 does not change the measurement or income
statement recognition of these plans, although it does require that plan assets and benefit obligations be measured as of the
balance sheet date. The Company has historically measured the plan assets and benefit obligations as of the balance sheet date.
The components of the Company’s defined benefit pension expense were as follows:
2015
Year Ended December 31,
2014
(in thousands)
2013
Components of net periodic benefit cost:
Service cost ....................................................................................................... $
Interest cost .......................................................................................................
Expected return on plan assets ..........................................................................
Net amortization loss .........................................................................................
Curtailment gain ................................................................................................
Net periodic benefit cost ................................................................................... $
- $
711
(668)
306
-
349 $
- $
893
(649)
259
-
503 $
288
797
(524)
305
(197)
669
The measurement date is December 31 for these plans. The funded status of the Company’s defined benefit pension plans
and the amount recognized in the consolidated balance sheets at December 31, 2015 and 2014 is as follows:
Change in benefit obligation:
Balance at beginning of year .................................................................................................... $
Interest cost ..............................................................................................................................
Participants' contributions ........................................................................................................
Actuarial (gain) loss .................................................................................................................
Benefits paid ............................................................................................................................
Currency translation adjustment ...............................................................................................
Balance at end of year .............................................................................................................. $
21,170 $
711
-
(1,360)
(1,021)
(918)
18,582 $
20,403
893
5
1,628
(457)
(1,302)
21,170
December 31,
2015
2014
(in thousands)
Change in fair value of plan assets:
Balance at beginning of year .................................................................................................... $
Actual return on plan assets .....................................................................................................
Participants' contributions ........................................................................................................
Employer contributions ............................................................................................................
Benefits paid ............................................................................................................................
Currency translation adjustment ...............................................................................................
Balance at end of year .............................................................................................................. $
16,724 $
70
-
752
(1,021)
(758)
15,767 $
15,540
1,119
5
1,546
(457)
(1,029)
16,724
December 31,
2015
2014
(in thousands)
F-29
December 31,
2015
2014
(in thousands)
Change in benefit obligation:
Funded status ................................................................................................................................ $
Unrecognized net loss ..................................................................................................................
Net amount recognized ................................................................................................................ $
(2,815) $
N/A
(2,815) $
(4,446)
N/A
(4,446)
The accumulated benefit obligation for all defined benefit pension plans was $18.6 million and $21.2 million at
December 31, 2015 and 2014, respectively.
The amounts recognized in the consolidated balance sheets consist of:
December 31,
2015
2014
(in thousands)
Deferred income tax assets ........................................................................................................... $
Other long term liabilities ............................................................................................................
Net amount recognized ................................................................................................................ $
535 $
(2,815)
(2,280) $
889
(4,446)
(3,557)
The amounts recognized in accumulated other comprehensive loss, net of tax consist of:
Underfunded status of pension plans ............................................................................................ $
Net amount recognized ................................................................................................................ $
December 31,
2015
2014
(in thousands)
(2,280) $
(2,280) $
(3,557)
(3,557)
The weighted average assumptions used in determining the net pension cost for these plans follows:
Year Ended December 31,
2014
2015
2013
Discount rate .....................................................................................................
Expected return on assets ..................................................................................
Rate of compensation increase ..........................................................................
3.57%
4.43%
0.00%
4.43%
4.15%
0.00%
4.43%
3.79%
2.99%
The discount rate assumptions used for pension accounting reflect the prevailing rates available on high-quality, fixed-
income debt instruments with terms that match the average expected duration of the Company’s defined benefit pension plan
obligations. The Company uses the iBoxx AA 15yr+ index, which matches the average duration of its pension plan liability of
approximately 15 years. With the current base of assets in the pension plans, a 0.1% increase/decrease in the discount rate
assumption would decrease/increase annual pension expense by approximately $56,000.
The Company’s mix of pension plan investments among asset classes also affects the long-term expected rate of return on
plan assets. As of December 31, 2015, the Company’s actual asset mix approximated its target mix. Differences between actual
and expected returns are recognized in the calculation of net periodic pension (income)/cost over the average remaining expected
future working lifetime, which is approximately 15 years, of active plan participants. With the current base of assets, a 0.1%
increase/decrease in the asset return assumption would decrease/increase annual pension expense by approximately $16,000.
F-30
The fair value and asset allocations of the Company’s pension benefits as of December 31, 2015 and 2014 measurement
dates were as follows:
2015
December 31,
(in thousands)
2014
Asset category:
Equity securities ...................................................................... $
Debt securities .........................................................................
Cash and cash equivalents .......................................................
Total ........................................................................................ $
8,506
7,103
158
15,767
54% $
45%
1%
100% $
8,145
7,260
1,319
16,724
49%
43%
8%
100%
Financial reporting standards define a fair value hierarchy that consists of three levels. The fair values of the plan assets
by fair value hierarchy level as of December 31, 2015 and 2014 is as follows:
December 31,
2015
2014
(in thousands)
Quoted Prices in Active Markets for Identical Assets (Level 1) .................................................. $
Significant Other Observable Inputs (Level 2) ............................................................................
Significant Other Unobservable Inputs (Level 3) ........................................................................
Total ............................................................................................................................................. $
158 $
15,609
-
15,767 $
1,319
15,405
-
16,724
Level 1 assets consist of cash and cash equivalents held in the pension plans at December 31, 2015. The Level 2 assets
primarily consist of investments in private investment funds that are valued using the net asset values provided by the trust or
fund, including an insurance contract. Although these funds are not traded in an active market with quoted prices, the investments
underlying the net asset value are based on quoted prices. Level 3 assets consist of an investment in a longevity fund which
invests in a portfolio of physical life insurance settlements that are valued using the net asset values provided by the fund. Since
June 2011, the fund has been closed to all activity. Due to the illiquidity and inactivity of the fund, during the year ended
December 31, 2014, the Company wrote down its Level 3 investment by an additional $0.6 million, which reduced its value to
$0.
The following table presents a summary of changes in the Company’s Level 3 investments measured at fair value on a
recurring basis:
Balance at beginning of year ........................................................................................................ $
Purchases during the year .............................................................................................................
Unrealized loss .............................................................................................................................
Balance at end of year .................................................................................................................. $
December 31,
2015
2014
(in thousands)
- $
-
-
- $
587
-
(587)
-
The Company expects to contribute approximately $0.8 million to its pension plans during 2016.
The benefits expected to be paid from the pension plans are $0.6 million in 2016, $0.6 million in 2017, $0.5 million in
2018, $0.7 million in 2019 and $0.6 million in 2020. The expected benefits to be paid in the five years from 2021—2025 are $4
million. The expected benefits are based on the same assumptions used to measure the Company’s benefit obligation at December
31, 2015.
18.
Commitments and Contingent Liabilities
From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course
of business. The Company is not currently a party to any such material claims or proceedings.
F-31
19.
Capital Stock
Common Stock
On February 5, 2008, the Company’s Board of Directors adopted a Shareholder Rights Plan and declared a dividend
distribution of one preferred stock purchase right for each outstanding share of the Company’s common stock to shareholders of
record as of the close of business on February 6, 2008. Initially, these rights will not be exercisable and will trade with the shares
of the Company’s common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person
becomes an “acquiring person” by acquiring 20% or more of the common stock of the Company or if a person commences a
tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an
acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current
exercise price, such number of shares of preferred stock which are equivalent to shares of the Company’s common stock having
a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination transaction
after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the
acquiring company’s common stock having a value of twice the exercise price of the right.
Preferred Stock
The Company’s Board of Directors has the authority to issue up to 5.0 million shares of preferred stock and to determine
the price privileges and other terms of the shares. The Board of Directors may exercise this authority without any further approval
of stockholders. As of December 31, 2015, the Company had no preferred stock issued or outstanding.
Employee Stock Purchase Plan (as amended, the “ESPP”)
In 2000, the Company approved the ESPP. Under this ESPP, participating employees can authorize the Company to
withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s
common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock
at 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the period. Shares are
issued under the ESPP for the six-month periods ending June 30 and December 31. Under this plan, 750,000 shares of common
stock are authorized for issuance of which 644,011 shares were issued as of December 31, 2015. During the years ended
December 31, 2015, 2014 and 2013, the Company issued 58,823 shares, 57,848 shares and 56,938, respectively, of the
Company’s common stock under the ESPP.
Stock Option Plans
Third Amended and Restated 2000 Stock Option and Incentive Plan (as amended, the “Third A&R Plan”)
The Second Amendment to the Third A&R Plan (the “Amendment”) was adopted by the Board of Directors on April 3,
2015. Such Amendment was approved by the stockholders at the Company’s 2015 Annual Meeting of Stockholders. Pursuant to
the Amendment, the aggregate number of shares authorized for issuance under the Third A&R Plan was increased by 2,500,000
shares to 17,508,929.
Through December 31, 2015, 2014 and 2013, incentive stock options to purchase 10,218,057 shares and non-qualified
stock options to purchase 13,088,374, 12,143,374 and 11,028,074 shares, respectively, had been granted to employees and
directors under the Stock Plans. Generally, both the incentive stock options and non-qualified stock options become fully vested
over a range of one to four-year periods.
Restricted Stock Units with a Market Condition (the “Market Condition RSU’s”)
On August 3, 2015, the Compensation Committee of the Board of Directors of the Company approved and granted deferred
stock awards of Market Condition RSU’s to members of the Company’s management team under the Third A&R Plan. The
vesting of these Market Condition RSU’s is cliff-based and linked to the achievement of a relative total shareholder return of the
Company’s common stock from August 3, 2015 to the earlier of (i) August 3, 2018 or (ii) upon a change of control (measured
relative to the Russell 3000 index and based on the 20-day trading average price before each such date). As of December 31,
2015, the target number of these restricted stock units that may be earned is 196,785 shares; the maximum amount is 150% of
the target number.
F-32
Stock-Based Payment Awards
The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC 718, which
requires it to recognize compensation expense for all stock-based payment awards made to employees and directors including
stock options, restricted stock units, Market Condition RSU’s and employee stock purchases related to the ESPP.
FASB ASC 718 requires companies to estimate the fair value of stock-based payment awards, except restricted stock
units, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service periods in its consolidated statements of operations.
The Company values stock-based payment awards, except restricted stock units, using the Black-Scholes option-pricing
model. The Company values the Market Condition RSU’s using a Monte-Carlo valuation simulation. The determination of fair
value of stock-based payment awards on the date of grant using an option-pricing model or Monte-Carlo valuation simulation is
affected by its stock price as well as assumptions regarding certain variables. These variables include, but are not limited to its
expected stock price volatility over the term of the awards and actual and projected stock option exercise behaviors. The Company
records stock compensation expense on a straight-line basis over the requisite service period for all awards granted since the
adoption of FASB ASC 718.
Earnings per share
Basic earnings per share is based upon net income divided by the number of weighted average common shares outstanding
during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and
Market Condition RSU’s into common stock using the treasury method. The weighted average number of shares used to compute
basic and diluted earnings per share consists of the following:
Year Ended December 31,
2014
2013
2015
Basic ...............................................................................................................................
Effect of assumed conversion of employee and director stock options, restricted stock
33,592,775
32,170,683
30,384,010
units and Market Condition RSU's .............................................................................
Diluted ............................................................................................................................
-
33,592,775
1,065,886
33,236,569
1,529,789
31,913,799
Excluded from the shares used in calculating the diluted earnings per common share in the above table are options,
restricted stock units and Market Condition RSU’s of approximately 5,521,283, 2,526,441 and 2,547,580 shares of common
stock for the years ended December 31, 2015, 2014 and 2013, respectively, as the impact of these shares would be anti-dilutive.
General Option Information
The following is a summary of stock option and the restricted stock unit activity:
Stock Options
Restricted Stock Units
Market Condition RSU's
Stock
Options
Outstanding
Weighted
Average
Exercise
Price
Restricted
Stock Units
Outstanding
Grant Date
Fair Value
Market
Condition
RSU's
Outstanding
Balance at December 31, 2012 ........................... 8,078,509 $
Granted .......................................................... 3,349,052
Exercised ....................................................... (3,410,483 )
Vested (RSUs) ...............................................
-
Cancelled / forfeited ....................................... (1,326,233 )
Balance at December 31, 2013 ........................... 6,690,845
Granted .......................................................... 1,115,300
(695,173 )
Exercised .......................................................
Vested (RSUs) ...............................................
-
(847,860 )
Cancelled / forfeited .......................................
Balance at December 31, 2014 ........................... 6,263,112
945,000
Granted ..........................................................
Exercised ....................................................... (1,772,062 )
Vested (RSUs) ...............................................
-
(413,864 )
Cancelled / forfeited .......................................
Balance at December 31, 2015 ........................... 5,022,186 $
4.25
4.44
3.20
-
5.26
3.42
4.18
3.08
-
4.67
3.42
5.31
3.04
-
4.15
3.85
677,193 $
259,931
-
(281,650)
(191,501)
463,973
116,400
-
(233,098)
(40,878)
306,397
254,685
-
(237,188)
(10,335)
313,559 $
3.97
4.62
-
-
4.07
4.32
4.12
-
-
4.36
4.30
5.56
-
-
5.56
5.29
F-33
Grant Date
Fair Value
-
-
-
-
-
-
-
-
-
-
-
4.81
-
-
4.81
4.81
- $
-
-
-
-
-
-
-
-
-
-
196,785
-
-
(11,247)
185,538 $
For 2013 and included in the table above are grants of 1,715,164 options and 135,650 restricted stock units related to the
spin-off of Biostage. Pursuant to the spin-off, share amounts and exercise prices of Harvard Bioscience options, as well as share
amounts of Harvard Bioscience restricted stock units were adjusted so that the intrinsic value held by the holder pertaining to the
existing option or award was maintained immediately following the spin-off.
The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to
satisfy stock option exercises and vesting of the restricted stock units.
The following table summarizes information concerning currently outstanding and exercisable options as of December 31,
2015 (Aggregate Intrinsic Value, in thousands):
Options Outstanding
Options Exercisable
Weighted
Average
Remaining Weighted
Contractual
Life
in Years
Average
Exercise
Price
Shares
Outstanding
at Dec. 31,
2015
Aggregate
Intrinsic
Value
Shares
Exercisable
at Dec. 31,
2015
Weighted
Average
Remaining Weighted
Contractual
Life
in Years
Average
Exercise
Price
Aggregate
Intrinsic
Value
505,949
621,136
369,758
529,191
592,477
700,375
71,500
750,000
596,800
285,000
5,022,186
3.25 $
6.42
4.27
7.41
4.85
8.41
8.66
7.88
9.11
9.42
6.88 $
2.21 $
2.56
3.04
3.64
3.98
4.12
4.21
4.31
5.36
5.56
3.85 $
637 505,949
565 472,617
159 292,758
- 271,884
- 581,227
- 165,625
-
19,750
- 125,000
29,309
-
-
-
1,361 2,464,119
3.25 $
6.42
2.80
7.41
4.78
8.41
8.58
7.88
8.68
-
5.32 $
2.21 $
2.56
3.04
3.64
3.98
4.12
4.21
4.31
4.79
-
3.23 $
637
430
126
-
-
-
-
-
-
-
1,193
Range of
Exercise
Price
$2.02-2.42
2.43-2.58
2.59-3.59
3.60-3.68
3.69-4.07
4.08-4.17
4.18-4.26
4.27-4.41
4.42-5.51
5.52-5.63
$2.02-5.63
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s
closing stock price of $3.47 as of December 31, 2015, which would have been received by the option holders had all option
holders exercised their options as of that date. The aggregate intrinsic value of options exercised for the years ended December
31, 2015, 2014 and 2013 was approximately $0.8 million, $1.8 million and $5.1 million, respectively. The total number of in-
the-money options that were exercisable as of December 31, 2015 was 1,196,226.
For the year ended December 31, 2015, the total compensation costs related to unvested awards not yet recognized is $4.2
million and the weighted average period over which it is expected to be recognized is 2.3 years.
Valuation and Expense Information under Stock-Based-Payment Accounting
F-34
Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the
employee stock purchase plan for the years ended December 31, 2015, 2014 and 2013 was allocated as follows:
2015
Year Ended December 31,
2014
(in thousands)
2013
Cost of revenues ................................................................................................ $
Sales and marketing ..........................................................................................
General and administrative ................................................................................
Research and development ................................................................................
Discontinued operations ....................................................................................
Total stock-based compensation ....................................................................... $
70 $
418
2,170
97
-
2,755 $
132 $
343
1,620
61
-
2,156 $
131
223
2,200
45
71
2,670
On April 28, 2015, the Company announced the appointment of James Green to its Board of Directors and the retirement
of Robert Dishman from its Board of Directors. As part of Dr. Dishman’s retirement, the Company (i) awarded an unrestricted
stock award to Dr. Dishman on April 28, 2015, having an aggregate cash value of $80,000, (ii) accelerated the vesting of all
outstanding stock options and restricted stock units that were unvested as of April 28, 2015, and (iii) extended the post-retirement
option exercise period for each option to the earlier to occur of the respective scheduled expiration date or April 28, 2016. Total
compensation expense recognized as part of general and administrative expenses for the year ended December 31, 2015, as part
of these modifications, was approximately $0.1 million.
The Company did not capitalize any stock-based compensation.
The weighted-average estimated fair value per share of stock options granted during 2015, 2014 and 2013 was $2.12, $2.18
and $2.41, respectively, using the Black Scholes option-pricing model with the following weighted-average assumptions:
Volatility .........................................................................................................
Risk-free interest rate ......................................................................................
Expected holding period (in years) .................................................................
Dividend yield .................................................................................................
Year Ended December 31,
2014
55.78%
1.80%
5.76 years
-%
2015
40.97%
1.72%
5.50 years
-%
2013
57.18%
1.42%
5.67 years
-%
The weighted average fair value of the Market Condition RSU’s granted under the Third A&R Plan during the year ended
December 31, 2015 was $4.81. The following assumptions were used to estimate the fair value, using a Monte-Carlo valuation
simulation, of the Market Condition RSU’s granted during the year ended December 31, 2015:
Year Ended
December 31,
2015
Volatility ................................................................................................................................................................
Risk-free interest rate .............................................................................................................................................
Correlation coefficient ...........................................................................................................................................
Dividend yield ........................................................................................................................................................
35.88%
0.99%
0.25%
-%
The Company used historical volatility to calculate the expected volatility as of December 31, 2015. Historical volatility
was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption
is based upon observed U.S. Treasury bill interest rates (risk-free) appropriate for the term of the Company’s stock options. The
expected holding period of stock options represents the period of time options are expected to be outstanding and were based on
historical experience. The vesting period ranges from one to four years and the contractual life is ten years.
Stock-based compensation expense recognized in the consolidated statements of operations for the years ended December
31, 2015, 2014 and 2013 is based on awards ultimately expected to vest and has been reduced for annualized estimated forfeitures
of 8.06%, 7.05% and 6.54%, respectively. Stock-based-payment accounting requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated
based on historical experience.
F-35
20.
Related Party Transactions
As part of the acquisitions of MCS and TBSI, the Company signed lease agreements with the former owners of the
acquired companies. The principals of such former owners were employees of the Company as of December 31, 2015. Pursuant
to a lease agreement, the Company incurred rent expense of approximately $0.2 million and $62,000 to the former owners of
MCS for the years ended December 31, 2015 and 2014, respectively. Pursuant to a lease agreement, the Company incurred rent
expense of approximately $42,000 and $11,000 to the former owner of TBSI for the years ended December 31, 2015 and 2014,
respectively.
21. Segment and Related Information
Operating segments are determined by products and services provided by each segment, internal organization structure,
the manner in which operations are managed, criteria used by the Chief Operating Decision Maker, or CODM, to assess the
segment performance, as well as resource allocation and the availability of discrete financial information. Following the spin-off
of Biostage, the Company’s former Regenerative Medicine Device segment, the Company has one operating segment. As such,
segment results and consolidated results are the same.
The following tables summarize selected financial information of the Company’s continuing operations by geographic
location:
Revenues originating from the following geographic areas consist of:
2015
Year Ended December 31,
2014
(in thousands)
2013
United States ..................................................................................................... $
Germany ............................................................................................................
United Kingdom ................................................................................................
Rest of the world ...............................................................................................
Total revenues ................................................................................................... $
64,766 $
15,755
18,051
10,092
108,664 $
63,727 $
8,240
24,754
11,942
108,663 $
63,810
5,751
23,123
12,487
105,171
Long-lived assets by geographic area consist of the following:
December 31,
2015
2014
(in thousands)
United States ................................................................................................................................ $
Germany .......................................................................................................................................
United Kingdom ...........................................................................................................................
Rest of the world ..........................................................................................................................
Total long-lived assets (1) ............................................................................................................ $
13,610 $
7,817
1,440
3,907
26,774 $
14,335
6,981
1,698
3,329
26,343
(1) Total long-lived assets includes property, plant and equipment, net and amortizable intangible assets, net.
Net assets by geographic area consist of the following:
United States ................................................................................................................................ $
Germany .......................................................................................................................................
United Kingdom ...........................................................................................................................
Rest of the world ..........................................................................................................................
Total net assets ............................................................................................................................. $
22,312 $
18,512
17,908
18,866
77,598 $
43,556
18,516
15,607
17,789
95,468
December 31,
2015
2014
(in thousands)
F-36
22.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. A
rollforward of allowance for doubtful accounts is as follows:
Charged (credited) to
Beginning
Balance
Bad Debt
Expense
(Recoveries)
Charged to
Allowance (1) Other (2)
(in thousands)
Ending
Balance
Year ended December 31, 2013 ................... $
Year ended December 31, 2014 ................... $
Year ended December 31, 2015 ................... $
194
358
328
172
(67)
(4)
(8)
56
4
- $
(19) $
(18) $
358
328
310
(1) Consists of accounts written off, net of recoveries.
(2) Consists of the effect of currency translation.
23.
Warranties
Warranties are estimated and accrued at the time revenues are recorded. A rollforward of the Company’s product warranty
accrual is as follows:
Beginning
Balance
Payments
Additions/
(Credits)
Ending
Balance
(in thousands)
Year ended December 31, 2013 .............................................. $
222
(179)
262 $
Year ended December 31, 2014 .............................................. $
305
(102)
49 $
Year ended December 31, 2015 .............................................. $
252
(81)
(24) $
305
252
147
F-37
24.
Quarterly Financial Information (unaudited)
Statement of Operations Data:
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Revenues ....................................................... $
Cost of revenues ............................................
Gross profit ...............................................
Total operating expenses ...............................
Operating (loss) income ................................
Other expense, net .........................................
(Loss) income before income taxes ...............
Income tax (benefit) expense ........................
Net (loss) income .......................................... $
25,763 $
14,285
11,478
12,628
(1,150 )
(614 )
(1,764 )
(363 )
(1,401 ) $
(Loss) earnings per share:
(in thousands, except per share data)
28,800 $
16,205
12,595
12,496
99
(526)
(427)
(776)
349 $
25,731 $
14,005
11,726
12,501
(775)
(321)
(1,096)
(249)
(847) $
28,370 $
15,446
12,924
12,811
113
(434)
(321)
16,819
(17,140) $
108,664
59,941
48,723
50,436
(1,713)
(1,895)
(3,608)
15,431
(19,039)
Basic (loss) earnings per common share ... $
(0.04 ) $
0.01 $
(0.02) $
(0.51) $
(0.57)
Diluted (loss) earnings per common share $
(0.04 ) $
0.01 $
(0.02) $
(0.51) $
(0.57)
F-38
Statement of Operations Data:
2014
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Revenues ....................................................... $
Cost of revenues ............................................
Gross profit ...............................................
Total operating expenses ...............................
Operating income ..........................................
Other expense, net .........................................
Income before income taxes ..........................
Income tax expense .......................................
Net income (loss) .......................................... $
25,893 $
14,132
11,761
10,427
1,334
(315 )
1,019
300
719 $
Earnings per share:
(in thousands, except per share data)
26,958 $
14,680
12,278
10,540
1,738
(468)
1,270
248
1,022 $
25,448 $
14,006
11,442
10,017
1,425
(469)
956
323
633 $
30,364 $
16,501
13,863
11,742
2,121
(949)
1,172
1,191
(19) $
108,663
59,319
49,344
42,726
6,618
(2,201)
4,417
2,062
2,355
Basic earnings per common share ............. $
0.02 $
0.03 $
0.02 $
- $
0.07
Diluted earnings per common share .......... $
0.02 $
0.03 $
0.02 $
- $
0.07
25. Subsequent Events
On March 9, 2016, the Company entered into an agreement with its lenders which amended the principal payment
amortization of the Term Loan and DDTL to five years, as well as amended the Company’s quarterly minimum fixed charge
coverage financial covenant. Refer to footnote 11 for additional details.
F-39
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by undersigned thereunto duly authorized.
SIGNATURES
Date: April 29, 2016
HARVARD BIOSCIENCE, INC.
By: /s/ JEFFREY A. DUCHEMIN
Jeffrey A. Duchemin
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ JEFFREY A. DUCHEMIN
Jeffrey A. Duchemin
Chief Executive Officer and Director (Principal Executive Officer)
April 29, 2016
/s/ ROBERT E. GAGNON
Robert E. Gagnon
Chief Financial Officer
April 29, 2016
(Principal Financial Officer and Principal Accounting Officer)
/s/ DAVID GREEN
David Green
/s/ JAMES GREEN
James Green
/s/ NEAL J. HARTE
Neal J. Harte
Director
Director
Director
/s/ JOHN F. KENNEDY
John F. Kennedy
Director
/s/ EARL R. LEWIS
Earl R. Lewis
/s/ BERTRAND LOY
Bertrand Loy
Director
Director
/s/ GEORGE UVEGES
George Uveges
Director
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
April 29, 2016
The following exhibits are filed as part of this Annual Report on Form 10-K. Where such filing is made by
incorporation by reference to a previously filed document, such document is identified.
EXHIBIT INDEX
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Description
Method of Filing
Asset Purchase Agreement, dated September 30,
2008, by and among Harvard Bioscience, Inc., as
Parent, Union Biometrica, Inc., as Seller, and UBIO
Acquisition Company, as Buyer
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed on October 6, 2008) and
incorporated by reference thereto
Asset Purchase Agreement, dated September 2,
2009, by and among Harvard Bioscience, Inc., as
Parent, and DAC Acquisition Holding, Inc., as
Purchaser, Denville Scientific, Inc., as Seller, and
Walter Demsia and Ryan Sharp, as Shareholders
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed September 9, 2009) and
incorporated by reference thereto
Separation and Distribution Agreement between
Harvard Bioscience, Inc. and Biostage, Inc. (f/k/a
Harvard Apparatus Regenerative Technology, Inc.)
dated as of October 31, 2013
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto §
Share Purchase Agreement between Biochrom
Limited, as Buyer, and Multi Channel Systems
Holding GmbH, as Seller, dated as of October 1,
2014
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 27, 2015) and
incorporated by reference thereto
Stock Purchase Agreement by and among Harvard
Bioscience, Inc., as Buyer, Triangle BioSystems,
Inc., and the sellers party thereto dated as of
October 1, 2014
Agreement for the Sale and Purchase of All Shares
in HEKA GmbH by and among Multi Channel
Systems MCS GmbH, as Purchaser, Dr. Peter
Schulze GmbH & Co. KG, as Seller, and Dr. Peter
Schulze, as Guarantor, dated as of January 8, 2015
Agreement for the Sale and Purchase of All Shares
in HEKA Canada between Ealing Scientific
Limited, as Purchaser, and Dr. Peter Schulze, as
Seller, dated as of January 8, 2015
3(i)
Second Amended and Restated Certificate of
Incorporation of Harvard Bioscience, Inc.
3(ii)
Amended and Restated By-laws of Harvard
Bioscience, Inc.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed October 1, 2014) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed January 9, 2015) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed January 9, 2015) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on November 9, 2000) and incorporated by
reference thereto
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on November 9, 2000) and incorporated by
reference thereto
3.3
Amendment No. 1 to Amended and Restated
Bylaws of Harvard Bioscience, Inc. (as adopted
October 30, 2007)
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed on November 1, 2007) and
incorporated by reference thereto
3.4
Certificate of Designations, Preferences and Rights
of a Series of Preferred Stock of Harvard
Bioscience, Inc. classifying and designating the
Series A Junior Participating Cumulative Preferred
Stock
4.1
Specimen certificate for shares of Common Stock,
$0.01 par value, of Harvard Bioscience, Inc.
Previously filed as an exhibit to the Company’s
Registration Statement on Form 8-A (filed February 8,
2008) and incorporated by reference thereto
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on November 9, 2000) and incorporated by
reference thereto
4.2
4.3
Amended and Restated Securityholders’ Agreement
dated as of March 2, 1999 by and among Harvard
Apparatus, Inc., Pioneer Partnership II, Pioneer
Capital Corp., First New England Capital, L.P. and
Citizens Capital, Inc. and Chane Graziano and
David Green
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on October 25, 2000) and incorporated by
reference thereto
Shareholders Rights Agreement, dated as of
February 5, 2008 between Harvard Bioscience,
Inc., and Registrar and Transfer Company, as
Rights Agent
Previously filed as an exhibit to the Company’s
Registration Statement on Form 8-A (filed February 8,
2008) and incorporated by reference thereto
10.1
Harvard Apparatus, Inc. 1996 Stock Option and
Grant Plan
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on October 25, 2000) and incorporated by
reference thereto
10.2
Harvard Bioscience, Inc. Third Amended and
Restated 2000 Stock Option and Incentive Plan
Previously disclosed in the Company’s Proxy Statement
on Schedule 14A (filed April 15, 2011) and incorporated
by reference thereto
10.3
Harvard Bioscience, Inc. Employee Stock Purchase
Plan
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on November 9, 2000) and incorporated by
reference thereto
10.4 # Amended and Restated Employment Agreement
between Harvard Bioscience, Inc. and Chane
Graziano, dated December 18, 2008
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 11, 2009) and
incorporated by reference thereto
10.5 # Amended and Restated Employment Agreement
between Harvard Bioscience, Inc. and David Green,
dated December 18, 2008
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 11, 2009) and
incorporated by reference thereto
10.6
Form of Director Indemnification Agreement
Previously filed as an exhibit to the Company’s
Registration Statement on Form S-1/A (File No. 333-
45996) (filed on October 25, 2000) and incorporated by
reference thereto
10.7
Lease of Unit 22 Phase I Cambridge Science Park,
Milton Road, Cambridge dated May 8, 2008
between The Master Fellows and Scholars of
Trinity College Cambridge and Biochrom Limited.
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 11, 2009) and
incorporated by reference thereto
10.8 # Amended and Restated Employment Agreement
between Harvard Bioscience, Inc. and Susan
Luscinski dated December 18, 2008.
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 11, 2009) and
incorporated by reference thereto
10.9 +
Strategic Supplier Alliance Agreement, dated
April 10, 2008, by and between Biochrom Limited
and GE Healthcare Biosciences, Corp.
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q/A, as amended (filed February 19,
2009) and incorporated by reference thereto
10.10
Lease, dated February 23, 2004, by and between
William Cash Forman and Hoefer, Inc.
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 15, 2004) and
incorporated by reference thereto
10.11 + Trademark License Agreement, dated December 9,
2002, by and between Harvard Bioscience, Inc. and
President and Fellows of Harvard College.
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed May 15, 2003) and
incorporated by reference thereto
10.12
Lease Agreement Between Seven October Hill,
LLC and Harvard Bioscience, Inc. dated
December 30, 2005.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed January 4, 2006) and
incorporated by reference thereto
10.13
Form of Incentive Stock Option Agreement
(Executive Officers).
10.14
Form of Non-Qualified Stock Option Agreement
(Executive Officers).
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 16, 2006) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 16, 2006) and
incorporated by reference thereto
10.15
Form of Non-Qualified Stock Option Agreement
(Non-Employee Directors).
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 16, 2006) and
incorporated by reference thereto
10.16 # Employment Agreement Between Harvard
Bioscience, Inc. and Thomas McNaughton, dated
November 14, 2008.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 18, 2008) and
incorporated by reference thereto
10.17 Amended and Restated Revolving Credit Loan
Agreement, dated as of August 7, 2009, by and
among Harvard Bioscience, Inc. and the Lenders
from time to time party thereto, including Bank of
America, N.A. (both in its capacity as “Lender” and
in its capacity as “Agent”), and Brown Brothers
Harriman & Co.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed August 13, 2009) and
incorporated by reference thereto
10.18 Amendment No. 2, dated as of May 22, 2010, to
Lease Agreement, as subsequently amended,
between Seven October Hill LLC and Harvard
Bioscience, Inc.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed June 3, 2010) and incorporated
by reference thereto
10.19
Form of Deferred Stock Award Agreement under
the Harvard Bioscience, Inc. Second Amended and
Restated 2000 Stock Option And Incentive Plan, as
amended
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 16, 2011) and
incorporated by reference thereto
10.20 Director Compensation Arrangements
Filed with this report
10.21 Amendment No. 1 to the Harvard Bioscience, Inc.
Employee Stock Purchase Plan, effective as of
January 1, 2012
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 14, 2014) and
incorporated by reference thereto
10.22
10.23
First Amendment to Harvard Bioscience, Inc. Third
Amended and Restated 2000 Stock Option and
Incentive Plan, effective as of March 9, 2013
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 14, 2014) and
incorporated by reference thereto
Second Amended and Restated Revolving Credit
Agreement, dated as of March 29, 2013, by and
among Harvard Bioscience, Inc. and the Lenders
from time to time party thereto, including Bank of
America, N.A. and Brown Brothers Harriman &
Co.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed April 3, 2013) and
incorporated by reference thereto
10.24 Amendment No. 2 to the Harvard Bioscience, Inc.
Employee Stock Purchase Plan, effective as of May
23, 2013
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 14, 2014) and
incorporated by reference thereto
10.25
First Amendment to Second Amended and Restated
Credit Agreement dated as of May 30, 2013, with
an effective date as of April 30, 2013, by and
among Harvard Bioscience, Inc. Bank of America,
N.A. and Brown Brothers Harriman & Co.
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 14, 2014) and
incorporated by reference thereto
10.26 # Employment Agreement, dated August 26, 2013,
between Harvard Bioscience, Inc. and Jeffrey A.
Duchemin
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed August 29, 2013) and
incorporated by reference thereto
10.27 # Offer letter dated September 30, 2013 between
Harvard Bioscience, Inc. and Yoav Sibony
10.28 # Offer letter dated September 30, 2013 between
Harvard Bioscience, Inc. and Yong Sun
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed February 19, 2014) and
incorporated by reference thereto.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed February 19, 2014) and
incorporated by reference thereto
10.29 # Employment Agreement, dated October 2, 2013,
between Harvard Bioscience, Inc. and Robert E.
Gagnon
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed October 16, 2013) and
incorporated by reference thereto
10.30
10.31
10.32
Second Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of
October 31, 2013, by and among Harvard
Bioscience, Inc. Bank of America, N.A. and Brown
Brothers Harriman & Co.
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed March 14, 2014) and
incorporated by reference thereto
Intellectual Property Matters Agreement between
Harvard Bioscience, Inc. and Biostage, Inc. (f/k/a
Harvard Apparatus Regenerative Technology, Inc.)
dated as of October 31, 2013.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
Product Distribution Agreement between Harvard
Bioscience, Inc. and Biostage, Inc. (f/k/a Harvard
Apparatus Regenerative Technology, Inc.) dated as
of October 31, 2013.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.33
Tax Sharing Agreement between Harvard
Bioscience, Inc. and Biostage, Inc. (f/k/a Harvard
Apparatus Regenerative Technology, Inc.) dated as
of October 31, 2013.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.34
Transition Services Agreement between Harvard
Bioscience, Inc. and Biostage, Inc. (f/k/a Harvard
Apparatus Regenerative Technology, Inc.) dated as
of October 31, 2013.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.35 Waiver Relating to the Employment Agreement
between Harvard Bioscience, Inc. and David Green
dated as of October, 31, 2013 between Harvard
Bioscience, Inc. and David Green.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.36 Waiver Relating to the Employment Agreement
between Harvard Bioscience, Inc. and Thomas
McNaughton dated as of October, 31, 2013
between Harvard Bioscience, Inc. and Thomas
McNaughton.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.37 # Amendment to Employment Agreement between
Harvard Bioscience, Inc. and Jeffrey A. Duchemin,
effective July 30, 2014.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed July 31, 2014) and
incorporated by reference thereto
10.38 # Amendment to Employment Agreement between
Harvard Bioscience, Inc. and Robert E. Gagnon,
effective July 30, 2014.
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed July 31, 2014) and
incorporated by reference thereto
10.39 Amendment No. 3, dated as of May 30, 2014, to
Lease Agreement, as subsequently amended,
between Seven October Hill LLC and Harvard
Bioscience, Inc.
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed August 7, 2014) and
incorporated by reference thereto
10.40 # Amendment to Employment Agreement, dated as
of March 1, 2015, between Harvard Bioscience,
Inc. and Jeffrey A. Duchemin
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed May 7, 2015) and
incorporated by reference thereto
10.41
10.42
Third Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of
April 24, 2015, by and among Harvard Bioscience,
Inc. Bank of America, N.A. and Brown Brothers
Harriman & Co.
Fourth Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of
June, 30, 2015, by and among Harvard Bioscience,
Inc. Bank of America, N.A. and Brown Brothers
Harriman & Co.
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed August 6, 2015) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed August 6, 2015) and
incorporated by reference thereto
10.43
Form of Deferred Stock Award Agreement under
the Harvard Bioscience, Inc. Third Amended and
Restated 2000 Stock Option And Incentive Plan, as
amended
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed November 5, 2015) and
incorporated by reference thereto
10.44
Fifth Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of
November 5, 2015, by and among Harvard
Filed with this report
Bioscience, Inc. Bank of America, N.A. and Brown
Brothers Harriman & Co.
21.1
Subsidiaries of the Registrant
Filed with this report
23.1
Consent of KPMG LLP
Filed with this report
31.1
31.2
32.1
32.2
Certification of Chief Financial Officer of Harvard
Bioscience, Inc., pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Filed with this report
Certification of Chief Executive Officer of Harvard
Bioscience, Inc., pursuant to Rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Filed with this report
Certification of Chief Financial Officer of Harvard
Bioscience, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
*
Certification of Chief Executive Officer of Harvard
Bioscience, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
*
101.INS XBRL Instance Document
Filed with this report
101.SCH XBRL Taxonomy Extension Schema Document
Filed with this report
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Filed with this report
Document
101.DEF XBRL Taxonomy Extension Definition Linkbase
Filed with this report
Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Filed with this report
Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Filed with this report
Document
+
*
#
§
Certain portions of this document have been granted confidential treatment by the Securities and Exchange
Commission (the “Commission”).
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934
Management contract or compensatory plan or arrangement.
The schedules and exhibits to the Separation and Distribution Agreement have been omitted. A copy of any omitted
schedule or exhibit will be furnished to the SEC supplementally upon request.
The Company will furnish to stockholders a copy of any exhibit without charge upon written request.
Exhibit 21.1
Subsidiaries of the Registrant
AHN Biotechnologie GmbH (Germany)
AHN Acquisition GmbH (Germany)
Asys Hitech GmbH (Austria)
Biochrom Limited (United Kingdom)
Biochrom US, Inc. (United States)
BioDrop Ltd. (United Kingdom)
Cartesian Technologies, Inc. (United States)
CMA Microdialysis AB (Sweden)
Coulbourn Instruments, LLC (United States)
Denville Scientific, Inc. (United States)
Ealing Scientific Limited (doing business as Harvard Apparatus, Canada) (Canada)
FKA GSI US, Inc. (formerly Genomic Solutions, Inc.) (United States)
FKAUBI, Inc. (formerly Union Biometrica, Inc.) (United States)
Genomic Solutions Canada, Inc. (United States)
Harvard Apparatus Limited (United Kingdom)
Harvard Apparatus, S.A.R.L. (France)
HEKA Electronics Incorporated (Canada)
HEKA Electronik Dr. Schulze GmbH (Germany)
HEKA Instruments Incorporated (United States)
Hoefer, Inc. (United States)
Hugo Sachs Elektronik Harvard Apparatus GmbH (Germany)
KD Scientific, Inc. (United States)
Multi Channel Systems MCS GmbH (Germany)
Panlab S.L. (Spain)
Scie-Plas Ltd. (United Kingdom)
Triangle BioSystems, Inc. (United States)
Walden Precision Apparatus Ltd. (United Kingdom)
Warner Instruments LLC (United States)
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
The Board of Directors
Harvard Bioscience, Inc.:
We consent to the incorporation by reference in the Registration Statement Numbers 333-53848, 333-104544, 333-135418,
333-151003, 333-174476, 333-189175 and 333-204760 on Form S-8, and 333-203552 on Form S-3, as amended, of Harvard
Bioscience, Inc. and subsidiaries of our reports dated April 29, 2016, with respect to the consolidated balance sheets of
Harvard Bioscience, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations,
comprehensive (loss) income, stockholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2015, and the effectiveness of internal control over financial reporting as of December 31, 2015, which reports
appear in the December 31, 2015 annual report on Form 10-K of Harvard Bioscience, Inc.
Our report dated April 29, 2016 on the effectiveness of internal control over financial reporting as of December 31, 2015,
expresses our opinion that the Company did not maintain effective internal control over financial reporting as of December
31, 2015 due to material weaknesses related to:
(cid:120)
Ineffective risk assessment process, including fraud risks, which failed to identify and analyze changes in the business
and personnel and implement process level controls and monitoring activities responsive to those changes;
(cid:120) An ineffective control environment at Denville Scientific, Inc. (Denville), an operating subsidiary, over the assignment
of authorities and responsibilities over financial reporting;
(cid:120)
(cid:120)
Ineffective general information technology controls (GITCs) to restrict or monitor users’ access within the ERP system
at Denville and ensure user roles were adequately restricted, which resulted in inappropriate segregation of duties;
Ineffective design and operation of process level control activities related to:
(cid:120)
financial statement reconciliations at Denville;
(cid:120) manual journal entries at Denville;
(cid:120)
(cid:120)
the measurement of inventory costs at Multi Channel Systems MCS GmbH, an operating subsidiary, and inventory
reserve adjustments at Biochrom Limited, an operating subsidiary; and
the recognition, measurement, and disclosure of current and deferred income taxes.
Our report dated April 29, 2016, on the effectiveness of internal control over financial reporting as of December 31, 2015,
contains an explanatory paragraph that states Harvard Bioscience, Inc. acquired HEKA Elektronik (“HEKA”) during 2015,
and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting
as of December 31, 2015, HEKA’s internal control over financial reporting associated with total assets of $6.3 million (of
which $4.5 million represents goodwill and intangibles included within the scope of the assessment) and total revenues of
$3.5 million in the consolidated financial statements of the Company as of and for the year ended December 31, 2015. Our
audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over
financial reporting of HEKA.
/s/ KPMG LLP
Boston, Massachusetts
April 29, 2016
I, Robert E. Gagnon, certify that:
Certification
1. I have reviewed this annual report on Form 10-K of Harvard Bioscience, Inc.;
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: April 29, 2016
/s/ ROBERT E. GAGNON
Robert E. Gagnon
Chief Financial Officer
I, Jeffrey A. Duchemin, certify that:
Certification
1. I have reviewed this annual report on Form 10-K of Harvard Bioscience, Inc.;
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: April 29, 2016
/s/ JEFFREY A. DUCHEMIN
Jeffrey A. Duchemin
Chief Executive Officer
CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO 18 U.S.C. SECTION 1350
EXHIBIT 32.1
The undersigned officer of Harvard Bioscience, Inc. (the “Company”) hereby certifies to his knowledge that the
Company’s annual report on Form 10-K for the year ended December 31, 2015 to which this certification is being furnished
as an exhibit (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with
the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and
Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be
deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and
(B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except
to the extent that the Company specifically incorporates it by reference.
Date: April 29, 2016
/s/ ROBERT E. GAGNON
Name: Robert E. Gagnon
Title: Chief Financial Officer
CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO 18 U.S.C. SECTION 1350
EXHIBIT 32.2
The undersigned officer of Harvard Bioscience, Inc. (the “Company”) hereby certifies to his knowledge that the
Company’s annual report on Form 10-K for the year ended December 31, 2015 to which this certification is being furnished
as an exhibit (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with
the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and
Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be
deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and
(B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except
to the extent that the Company specifically incorporates it by reference.
Date: April 29, 2016
/s/ JEFFREY A. DUCHEMIN
Name: Jeffrey A. Duchemin
Title: Chief Executive Officer
Exhibit 1Harvard Bioscience, Inc.Reconciliation of US GAAP Income (Loss) from Continuing Operations to Non-GAAP Adjusted Income from Continuing Operations (Unaudited)Exhibit 2Harvard Bioscience, Inc.Reconciliation of US GAAP Diluted Earnings (Loss) Per Common Share from Continuing Operations to Non-GAAP Adjusted Diluted Earnings Per Common Share from Continuing Operations (unaudited)For the Year Ended December 31, 2011 2012 2013 2014 2015US GAAP income (loss) from continuing operations........................$ 5,289 $ 4,494 $ 723 $ 2,355 $ (19,039 )Adjustments:Amortization of intangible assets ............................................... 2,746 2,752 2,590 2,578 2,819 Inventory valuation step-up charges on acquisition ................... – – – 263 799Inventory write-down ................................................................. 76 74 – – – Acquisition costs ........................................................................ 699 308 5 1,144 1,187 Biostage transaction costs ......................................................... 161 696 2,048 – – Restructuring and severance related expenses ......................... 640 310 2,150 1,647 1,849 Stock-based compensation expense ......................................... 2,819 3,257 2,599 2,156 2,755 Income taxes .............................................................................. (2,614 ) (1,671 ) (3,053 ) (1,250 ) 14,035Non-GAAP adjusted income from continuing operations ................$ 9,816 $ 10,220 $ 7,062$ 8,893$ 4,405For the Year Ended December 31, 2011 2012 2013 2014 2015US GAAP earnings (loss) per diluted share from continuing operations ... $ 0.18 $ 0.15 $ 0.02 $ 0.07 $ (0.57 ) Adjustments:Amortization of intangible assets ............................................... 0.09 0.09 0.08 0.08 0.08 Inventory valuation step-up charges on acquisition ................... – – – 0.01 0.02Inventory write-down ................................................................. – – – – – Acquisition costs ........................................................................ 0.02 0.01 – 0.03 0.04 Biostage transaction costs ......................................................... 0.01 0.02 0.06 – – Restructuring and severance related expenses ......................... 0.02 0.01 0.07 0.05 0.06 Stock-based compensation expense ......................................... 0.09 0.11 0.08 0.06 0.08 Income taxes .............................................................................. (0.08 ) (0.05 ) (0.09 ) (0.03 ) 0.42Non-GAAP adjusted earnings per diluted share from continuing operations ..................................................................... $ 0.33 $ 0.34 $ 0.22 $ 0.27 $ 0.13Forward-Looking StatementsThis Annual Report contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “capitalize,” “increase,” “guidance,” “objectives,” “emerging,” “long-term,” “growth,” “potential,” “future,” “expects,” “plans,” “achieve,” “could,” “will,” “lead,” “opportunity,” “estimate,” “continue,” “strategy,” “intend,” “believe,””see,” “may,” “should,” “would,” “seek,” “aim,” “anticipates,” “projects,” “predicts,” “think,” “optimistic,” “new,” “goal” and similar expressions. These statements include, but are not limited to, statements or inferences about our beliefs, plans or objectives, management’s confidence or expectations, our business strategy and ability to execute such strategy, the outlook for the life sciences industry, and our positioning for growth and market demand. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations, our business strategy, our ability to raise capital or borrow funds to consummate acquisitions and the availability of attractive acquisition candidates, our expectations regarding future costs of product revenues, our anticipated compliance with the covenants contained in our credit facility, the adequacy of our financial resources and our plans, objectives, expectations and intentions that are not historical facts, plus factors described under the heading “Part I, Item 1A. Risk Factors” in our 2015 Annual Report on Form 10-K or in our other public filings.WWW.HARVARDBIOSCIENCE.COM 84 O ctober H i ll R oa d
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