Solutions to Advance Life Science
2016 ANNUAL REPORT Financial Highlights
Revenues
($ U.S. in thousands)
111,171
108,663
108,664
105,171
104,521
2016 Revenues by Region
(Revenues originating from region)
FY12
FY13
FY14
FY15
FY16
Non-GAAP Adjusted Income
from Continuing Operations
($ U.S. in thousands)
10,220
8,893
7,062
4,405
4,980
62% United States
16% United Kingdom
13% Germany
9% Rest of the World
Employees by Country
(As of December 31, 2016)
FY12
FY13
FY14
FY15
FY16
Non-GAAP Adjusted Diluted EPS
($ U.S.)
0.34
0.27
0.22
0.13
0.15
56% United States
22% Germany
11% United Kingdom
6% Spain
2% Canada
2% Sweden
1% China
0% France
FY12
FY13
FY14
FY15
FY16
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.
H A R V A R D B I O S C I E N C E , I N C . • 2 0 1 6 A N N U A L R E P O R T
Jeff Duchemin
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 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.
Financial Performance
Selected Financial Data
For The Year Ended December 31,
2016
2015
2014
2013
2012
(in thousands, except per share data)
Statement of Operations Data:
Revenues .......................................................................................
$ 104,521 $ 108,664 $ 108,663 $ 105,171 $ 111,171
Cost of revenues ............................................................................
56,106 59,941 59,319 57,475 58,831
Gross profit ..............................................................................
48,415 48,723 49,344 47,696 52,340
Operating expenses .......................................................................
51,412 50,436 42,726 46,159 44,510
Operating (loss) income ...........................................................
(2,997 )
(1,713 ) 6,618 1,537
7,830
Other expense, net ..................................................................
(81 )
(1,895 )
(2,201 )
(1,102 )
(938 )
(Loss) income from continuing operations before income taxes ..
(3,078)
(3,608 ) 4,417
435 6,892
Income tax expense (benefit) .........................................................
1,229 15,431 2,062
(288)
2,398
(Loss) income from continuing operations ...............................
(4,307 ) (19,039 ) 2,355
723 4,494
Discontinued operations:
Loss from discontinued operations, net of tax .........................
–
–
–
(2,553 )
(2,124 )
Net (loss) income .....................................................................
$ (4,307 ) $ (19,039 ) $ 2,355 $ (1,830 ) $ 2,370
(Loss) earnings per share:
Basic (loss) earnings per common share from continuing operations .. $
(0.13 ) $
(0.57 ) $
0.07 $
0.02 $
0.16
Discontinued operations ..........................................................
0.00
0.00
0.00
(0.08 )
(0.07 )
Basic (loss) earnings per common share .................................
$
(0.13 ) $
(0.57 ) $
0.07 $
(0.06 ) $
0.09
Diluted (loss) earnings per common share from continuing operations .. $
(0.13 ) $
(0.57 ) $
0.07 $
0.02 $
0.15
Discontinued operations ..........................................................
0.00
0.00
0.00
(0.08 )
(0.07 )
Diluted (loss) earnings per common share ...............................
$
(0.13 ) $
(0.57 ) $
0.07 $
(0.06 ) $
0.08
Weighted average common shares:
Basic .........................................................................................
34,212 33,593 32,171 30,384 28,799
Diluted ......................................................................................
34,212 33,593 33,237 31,914 29,793
As of December 31,
2016
2015
2014
2013
2012
(in thousands)
Balance Sheet Data:
Cash and cash equivalents .......................................................
$ 5,596 $ 6,744 $ 14,134 $ 25,771 $ 20,681
Working capital .........................................................................
30,871 31,226 38,964 44,665 49,071
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
Total assets ..............................................................................
107,765 120,050 135,916 135,460 133,484
Management and a bachelor of
Long-term debt, net of current portion ....................................
11,374 16,369 16,450 19,750 12,950
Stockholders’ equity .................................................................
72,196 77,598 95,468 94,485 104,213
arts degree in accounting from
Bentley College.
Please refer to Item 6 beginning on page 21 in our Annual Report on Form 10-K for the year ended December 31, 2016,
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
Dear Fellow Shareholders
Throughout 2016, the Harvard Bioscience team realized many achievements and
accomplished many goals which positioned the business for long term success
and growth in shareholder value. However, 2016 was not without its challenges.
We encountered headwinds throughout the year related to currency translation,
softness in the European funding environment, and slower than expected NIH
funding outlays in the United States. Despite these conditions, we made important
operational progress toward leveraging our infrastructure and expanding our
margins. I am proud to say that even in this challenging environment, we exit 2016
with a solid foundation to further our operational progress in 2017 and beyond.
Continuing Strategic Focus
During 2016, we committed to deliver bottom-line growth despite the challenging
environment, and we delivered on this promise. This was realized primarily through
benefits of our 2015 site consolidations, cost containment measures, and continued
financial discipline. We delivered higher gross margins, a reduction of operating
expenses, an increase in operating margins, and an increase in non-GAAP earnings
in an environment that did not permit organic revenue growth. The benefits of
restructuring, site consolidations, and other cost reduction programs were realized
and reflected in our financial results.
In October, we announced the disposition of our AHN subsidiary for $1.7 million.
AHN is a manufacturer of liquid handling products based in Germany with 2016
revenues of $2.1 million. Although the business was an interesting one for our
portfolio, AHN required substantial capital to continue to grow without meaningful
future leverage or synergies with our existing business. As we conducted a broader
review of our overall strategy, we deemed AHN to be nonstrategic to our core
assets and made the decision to divest it.
Streamlining Systems
During the second quarter of 2016, we began the second phase of our global
ERP implementation. To better manage our company which was built through
acquisitions, it is important to streamline systems, upgrade technology and better
integrate some of our legacy businesses. These enhancements have and 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.
In January of 2017, we went live on our ERP platform at our largest German
subsidiary, Multi Channel Systems. The cross functional team that worked on
this effort did an excellent job. By tackling this piece of our European footprint,
we expect to be able to drive further operational efficiencies with the sites on one
system through coordinated purchasing and inventory management as well as other
benefits, like having a common platform to integrate future acquisitions. We are
pleased with the implementation and look forward to the future benefits that will be
afforded through this project.
CRISPR Technology
CRISPR has revolutionized
genetic engineering allowing
researchers to make precise
changes in the genes of
virtually every living
organism, including humans.
This technology was originally
discovered as a ‘bacterial
immune’ system against
viruses. Scientists have
harnessed this system to
modify bacterial strains that
can produce new antibiotics
with better specificities,
improve culture stability and
lifespan in food production
(e.g. yogurt, cheese, etc.) and
other industrial applications.
The gene editing power
of CRISPR is also allowing
researchers new ways to study
diseases including ways to
cure them. Mutant genes can
now be corrected in adult
organisms resulting in reversal
of symptoms and even cures
for heritable disorders.
Macro Environment Remains Challenging
During 2016, we encountered headwinds related to currency translation, softness
in the European funding environment, and slower than expected NIH funding
outlays in the U.S. which adversely impacted our top line.
With the EURO devaluation in 2015, Brexit, and the British pound sterling
devaluation this year, the European market has been plagued with challenges.
Throughout 2016, the end market in Europe was soft due to currency translation
and weakness in the funding environment. While we expect currency translations
to continue to pressure our business results into 2017, we continue to take
initiatives to improve operational performance.
Approximately 50% of our business comes from the US market, and within that,
roughly 70% of our US customers are academic labs which are primarily funded
by the National Institutes of Health. We continue to be optimistic that we will
experience a sustained acceleration of academic funding from the NIH based on
last year’s approved budget, the proposed fiscal 2017 budget and, as of this point,
bipartisan support for funding increases from the government going forward.
We expect the outflow of funds will improve and that our customer’s confidence
will be restored when funding certainty resumes. We believe that it isn’t a matter
of if but when. Until we have greater clarity, we will continue to be prudent
stewards of capital with a disciplined approach in managing our bottom line. When
the certainty returns to our end customers, our commercial teams are positioned
to reap the benefits.
Looking Ahead…
Despite facing challenges to our top-line growth in 2016, we are encouraged
by our accomplishments and believe we are well positioned to continue this
operational momentum as we move into 2017. In the year ahead, we look
forward to realizing the ongoing financial and operational benefits from continued
geographic expansion in Asia, our strengthening balance sheet, site consolidations
and cost containment programs. We remain well positioned to benefit from
improved funding in the academic environment when that occurs.
We are steadfast in the strategic vision of our organization and believe it will
drive topline growth, improve profitability through operational performance, and
ultimately create shareholder value. We have a terrific team, and I am confident
we will continue to drive operational success in 2017. I would like to again thank
my colleagues for all that they accomplished in 2016, and I would like to thank you
personally for your continued support. We look forward to sharing our successes
with you.
Sincerely,
Jeffrey A. Duchemin
President & Chief Executive Officer
BTX & CRISPR
In order for CRISPR to work,
it must be introduced into
target cells without killing
them. Many of the key cell
types used with CRISPR
(e.g. stem cells, neurons,
tissues of adult animals
including humans, etc)
do not tolerate the standard
methods of introduction.
Electroporation is a technique
that uses electrical pulses to
create very small holes in the
cell membrane allowing the
CRISPR ‘machinery‘ to enter
the cells with minimal harm.
BTX Electroporators
(including the Gemini Systems)
have the power, reproducibility,
ease-of-use, low toxicity and
efficiency that is critical
for unlocking the full potential
of this powerful new gene
editing technology.
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, 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 7, 2017, the Company
had 133 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 Thursday, May 18, 2017 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
Formerly President & CEO
Analogic Corporation
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, 2016
Quarter
High
Low
First
Second
Third
Fourth
$ 3.25
$ 3.83
$ 3.19
$ 3.05
FY 2016 average
FY 2016 closing
$ 2.48
$ 2.72
$ 2.53
$ 2.30
$ 2.84
$ 3.05
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
W W W . H A R V A R D B I O S C I E N C E . C O M
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2016
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). YES (cid:95) NO (cid:133)
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)
Non-accelerated filer (cid:133)
Accelerated filer (cid:95)
Smaller reporting company (cid:133)
(Do not check if a smaller reporting company)
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 31,368,985 shares of voting common equity held by non-affiliates of the registrant as of June 30, 2016 was
approximately $89,715,296 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 7, 2017, there were 34,582,588 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 2017 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.
HARVARD BIOSCIENCE, INC.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2016
INDEX
PART I
Item 1.
Business ...........................................................................................................................................
Item 1A.
Risk Factors .....................................................................................................................................
Page
1
8
Item 1B.
Unresolved Staff Comments ............................................................................................................
19
Item 2.
Properties .........................................................................................................................................
19
Item 3.
Legal Proceedings ............................................................................................................................
19
Item 4.
Mine Safety Disclosures ..................................................................................................................
19
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ..............................................................................................................................
20
Item 6.
Selected Financial Data ...................................................................................................................
21
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations ...........
23
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk ..........................................................
37
Item 8.
Financial Statements and Supplementary Data ................................................................................
38
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........
38
Item 9A.
Controls and Procedures ..................................................................................................................
38
Item 9B.
Other Information ............................................................................................................................
42
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...............................................................
42
Item 11.
Executive Compensation .................................................................................................................
42
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .............................................................................................................................................
42
Item 13.
Certain Relationships and Related Transactions, and Director Independence .................................
42
Item 14.
Principal Accounting Fees and Services ..........................................................................................
42
PART IV
Item 15.
Exhibits, Financial Statement Schedules .........................................................................................
43
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 (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.”
PART I
Item 1.
Business.
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 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.
Starting in 2013 with the hiring of a new management team, led by President and CEO Jeffrey A. Duchemin, we
initiated a multi-year restructuring program to reduce costs, align global functions, consolidate facilities to optimize our
1
global footprint, and to reinvest in key areas such as sales and common IT systems. We also developed a strategy to grow the
business through strategic, accretive acquisitions.
To that end, during 2014, 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 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
Instruments subsidiaries. Additionally, in January 2015, we acquired HEKA Elektronik through the acquisition of HEKA
Electronics Incorporated, our HEKA Canada subsidiary (HEKA Canada), HEKA Electronik Dr. Schulze GmbH, our HEKA
Germany subsidiary (HEKA Germany) and HEKA Instruments Incorporated, our United States HEKA subsidiary (HEKA
U.S., and together with HEKA Canada and HEKA Germany, 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.
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 Canada to 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 U.S to our Holliston, MA headquarters. These relocation
plans were completed as of December 31, 2015. 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 2016, we initiated plans to sell the operations of our AHN Biotechnologie GmbH subsidiary
(AHN), located in Nordhausen, Germany. AHN is a manufacturer of liquid handling products which had revenues of $2.1
million in 2016. We concluded the sale of AHN in the fourth quarter of 2016, for gross cash proceeds of approximately $1.7
million.
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;
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.
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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.
In addition to our proprietary manufactured products, we sell many products that are made by other manufacturers.
These distributed products accounted for approximately 36% of our revenues for the year ended December 31, 2016.
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, 2016.
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 and others. We sell these products through our global sales force and
global distribution channel. LPS product family made up approximately 26% of our global revenues for the year ended
December 31, 2016.
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 24% of our global revenues for the year ended December 31,
2016.
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 Baylor
College of Medicine, Cambridge University, Harvard University, Johns Hopkins University, Massachusetts Institute of
Technology, University of California system, University of Texas - MD Anderson Center and Yale University. Our
pharmaceutical and biotechnology customers have included pharmaceutical companies and research laboratories such as
3
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 2016.
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, 2016, revenues from direct
sales to end-users represented approximately 64% of our revenues; and revenues from sales of our products through
distributors represented approximately 36% 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. Since 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.
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 $5.4
million, $6.4 million and $4.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. From time to
time, we receive grants from governmental entities in relation to research projects. Such grants received are accounted for as
a reduction in research and development expenses over the period of the project. 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.
4
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
Holliston, Massachusetts
Hamden, Connecticut
Reutlingen, Germany
Lambrecht, Germany
March-Hugstetten, Germany
Richmond, California
Barcelona, Spain
Durham, North Carolina
Kista, Sweden
Going forward we will continue to evaluate our manufacturing facilities and operations to further our goal of having
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, 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. Additionally, academic institutions in the
northern hemisphere typically take a hiatus during the summer months. 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.
5
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.
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.
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Employees
As of December 31, 2016, we employed 435 employees, of which 411 are full-time and 24 are part-time. As of
December 31, 2015, we employed 437 employees, of which 412 were full-time and 25 were part-time.
Geographical residence information for these employees is summarized in the table below:
As of December 31, 2016
United States .................................................................................................................................................
Germany ........................................................................................................................................................
United Kingdom ............................................................................................................................................
Spain ..............................................................................................................................................................
Canada ...........................................................................................................................................................
Sweden ..........................................................................................................................................................
China .............................................................................................................................................................
France ............................................................................................................................................................
Total ..............................................................................................................................................................
246
94
47
26
8
7
5
2
435
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 Annual Report.
Executive Officers of the Registrant
The following table shows information about our executive officers as of December 31, 2016.
Name
Jeffrey Duchemin ...................
Robert Gagnon .......................
Yong Sun ................................
Age
51
42
53
Position
Chief Executive Officer, President and Director
Chief Financial Officer
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 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
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(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 similar 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 or directed for certain products. 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.
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 likely continue 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
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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, British pound, 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.
Economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European Union could
adversely affect our business.
In June 2016, the United Kingdom (the “U.K.”) held a referendum in which voters approved an exit from the European
Union (“E.U.”), commonly referred to as Brexit. It is expected that the U.K. government will initiate a process to withdraw
from the E.U. and begin negotiating the terms of its separation. The announcement of Brexit has resulted in significant
volatility in global stock market and currency exchange rate fluctuations that resulted in strengthening of the U.S. dollar
relative to other foreign currencies in which we conduct business. The announcement of Brexit and the likely withdrawal of
the U.K. from the E.U. may also create global economic uncertainty, including an uncertain funding environment for U.K.
customers receiving funding from the E.U, which may cause our customers to closely monitor their costs and reduce their
spending budgets. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either
during a transitional period or more permanently. Since a significant proportion of the regulatory framework in the United
Kingdom is derived from European Union directives and regulations, the referendum could materially change the regulatory
regime applicable to the approval of any product candidates in the United Kingdom. In addition, since the EMA is located in
the U.K., the implications for the regulatory review process in the European Union has not been clarified and could result in
relocation of the EMA or a disruption in the EMA review process.
Further, Brexit could adversely affect European and worldwide economic or market conditions and could contribute to
instability in global financial markets. Brexit is likely to lead to legal uncertainty and potentially divergent national laws and
regulations as the U.K. determines which E.U. laws to replace or replicate. This could adversely affect our business, financial
condition, operating results and cash flows.
Domestic and global economic conditions could adversely affect our operations.
We are 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, 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.
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Changes in governmental regulations may reduce demand for our products, adversely impact our revenues, or increase
our expenses.
We compete in many markets in which we and our customers must comply with federal, state, local and international
regulations. We develop, configure and market our products to meet customer needs created by those regulations. These
requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising
and post marketing reporting. We must incur expense and spend time and effort to ensure compliance with these complex
regulations. Possible regulatory actions for non-compliance could include warning letters, fines, damages, injunctions, civil
penalties, recalls, seizures of our products, and criminal prosecution. These actions could result in, among other things,
substantial modifications to our business practices and operations; refunds, recalls, or seizures of our products; a total or
partial shutdown of production in one or more of our facilities while we or our suppliers remedy the alleged violation; and
withdrawals or suspensions of current products from the market. Any of these events could disrupt our business and have a
material adverse effect on our revenues, profitability and financial condition.
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.
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 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.
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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, 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.
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 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.
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 and harmonize 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.
11
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. 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.
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 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. 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, 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.
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.
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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.
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 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. Any failure to meet our debt
and other financial obligations could harm our business, financial condition and results of operations.
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”), which was
subsequently amended on March 9, 2016. As of December 31, 2016, we had borrowings of $13.9 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. In addition,
any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely harm our
ability to incur additional indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient to pay
interest and principal on our debt in the future. If that should occur, our capital raising or debt restructuring measures may be
unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations
and further impair our liquidity.
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;
13
(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.
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 within any applicable grace or cure periods to may such payments, comply with the financial covenants, or any other
non-financial or restrictive covenant, would create a default under our Credit Agreement. The maturity date with respect to
the loans under the Credit Agreement is currently March 29, 2018. Our cash flow and existing capital resources may be
insufficient to repay our debt at maturity, in which such case prior thereto we would have to extend such maturity date, or
otherwise repay, refinance and or restructure the obligations under the Credit Agreement, including with proceeds from the
sale of assets, and additional equity or debt capital. If we are unsuccessful in obtaining such extension, or entering into such
repayment, refinance or restructure prior to maturity, or any other default existed under the Credit Agreement, 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.
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.
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)
volatility of the financial markets;
uncertainty regarding the prospects of the domestic and foreign economies;
14
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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.
As a result of our spin-off of Harvard Apparatus Regenerative Technology, Inc., now known as Biostage, together with
certain related transactions, 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.
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, 2016. 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
concluded that our internal control over financial reporting was ineffective as of December 31, 2016 due to material
weaknesses that were unremediated from the year-ended December 31, 2015 and described in Item 9A.
Failure to have effective internal control over financial reporting 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, 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
15
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 remediate 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 2017, we cannot be certain as to when remediation will be fully completed. The material weaknesses will not
be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded,
through testing, that these controls are operating effectively. Additional details regarding the 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 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 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.
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, 2016, we had goodwill and intangible assets of $56.7 million, or 53%, 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 23 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.
16
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, 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 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
17
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.
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.
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
18
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. Unless the Board of Directors elects to extend such plan, the Shareholder
Rights Plan will expire in February 2018. 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.
Item 2.
Properties.
Our 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 22,449 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,
We also lease additional facilities in Cambourne, England, Lambrecht, Germany, Hamden Connecticut, Durham, North
Carolina and Kista, Sweden, 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.
19
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, 2016
First Quarter .................................................................................................................... $
Second Quarter ................................................................................................................ $
Third Quarter ................................................................................................................... $
Fourth Quarter ................................................................................................................. $
High
Low
3.25 $
3.83 $
3.19 $
3.05 $
Fiscal Year Ended December 31, 2015
First Quarter .................................................................................................................... $
Second Quarter ................................................................................................................ $
Third Quarter ................................................................................................................... $
Fourth Quarter ................................................................................................................. $
High
Low
5.82 $
6.70 $
5.63 $
4.06 $
2.48
2.72
2.53
2.30
5.02
5.15
3.74
2.87
On March 7, 2017, the closing sale price of our common stock on the NASDAQ Global Market was $2.75 per share.
There were 133 holders of record of our common stock as of March 7, 2017. 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, 2011 to December 31, 2016 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, 2011. 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.
20
12/11
12/12
12/13
12/14
12/15
12/16
Harvard Bioscience, Inc. .................................... 100.00 113.18 160.29 193.37 118.34 104.02
Russell 2000 ......................................................... 100.00 116.35 161.52 169.43 161.95 196.45
NASDAQ Biotechnology .................................... 100.00 134.68 232.37 307.67 328.76 262.08
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.
21
2016
For The Year Ended December 31,
2014
(in thousands, except per share data)
2013
2015
2012
Statement of Operations Data:
Revenues ........................................................................ $ 104,521 $ 108,664 $ 108,663 $ 105,171 $ 111,171
58,831
Cost of revenues .............................................................
52,340
Gross profit .................................................................
44,510
Operating expenses ........................................................
7,830
Operating (loss) income .............................................
Other expense, net ......................................................
(938)
(Loss) income from continuing operations before
57,475
47,696
46,159
1,537
(1,102)
56,106
48,415
51,412
(2,997)
(81)
59,319
49,344
42,726
6,618
(2,201)
59,941
48,723
50,436
(1,713)
(1,895)
income taxes (1) .....................................................
Income tax expense (benefit) (2) ....................................
(Loss) income from continuing operations .................
(3,078)
1,229
(4,307)
(3,608)
15,431
(19,039)
4,417
2,062
2,355
435
(288)
723
6,892
2,398
4,494
Discontinued operations (3):
Loss from discontinued operations, net of tax .........
Net (loss) income ....................................................... $
-
-
(4,307) $ (19,039) $
-
2,355 $
(2,553)
(1,830) $
(2,124)
2,370
(Loss) earnings per share:
Basic (loss) earnings per common share from
continuing operations ............................................. $
Discontinued operations .............................................
Basic (loss) earnings per common share .................... $
(0.13) $
-
(0.13) $
(0.57) $
-
(0.57) $
0.07 $
-
0.07 $
0.02 $
(0.08)
(0.06) $
0.16
(0.07)
0.09
Diluted (loss) earnings per common share from
continuing operations ............................................. $
Discontinued operations .............................................
Diluted (loss) earnings per common share ................. $
(0.13) $
-
(0.13) $
(0.57) $
-
(0.57) $
0.07 $
-
0.07 $
0.02 $
(0.08)
(0.06) $
0.15
(0.07)
0.08
Weighted average common shares:
Basic ...........................................................................
Diluted ........................................................................
34,212
34,212
33,593
33,593
32,171
33,237
30,384
31,914
28,799
29,793
2016
2015
As of December 31,
2014
(in thousands)
2013
2012
Balance Sheet Data:
20,681
Cash and cash equivalents .............................................. $
Working capital ..............................................................
49,071
Total assets ..................................................................... 107,765 120,050 135,916 135,460 133,484
12,950
Long-term debt, net of current portion ...........................
19,750
94,485 104,213
Stockholders’ equity .......................................................
5,596 $
30,871
11,374
72,196
14,134 $
38,964
25,771 $
44,665
16,450
95,468
16,369
77,598
6,744 $
31,226
(1)
Included in the net operating loss for the year ended December 31, 2016 was $1.7 million of forensic investigation
costs from the first half, a $0.7 million AHN impairment charge from the third quarter, and a $1.2 million loss on
sale of AHN from the fourth quarter. The total impact of these three charges, on a pre-tax basis, was $3.6 million
for the year ended December 31, 2016.
(2)
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.
(3) On September 30, 2008, we completed the sale of assets of our Union Biometrica Division including its German
subsidiary, Union Biometrica GmbH, representing at that time the remaining portion of our Capital Equipment
Business Segment, 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 and
$0.8 million in 2013 and 2012, respectively.
22
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 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 and 2012 of $2.8 million and $3.0 million, respectively.
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 and other specialized
distributors. We have sales and manufacturing operations in the United States, the United Kingdom, Germany, Sweden,
Spain, France, Canada, and China.
In 2014, we initiated a multiple year plan to invest in and implement a new global enterprise resource planning platform.
Additionally, during 2014, as part of a multi-year restructuring program that began at the end of 2013, 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 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
Instruments subsidiaries. Additionally in January 2015, we acquired HEKA Electronik through the acquisition of HEKA
Electronics Incorporated, our HEKA Canada subsidiary (HEKA Canada), HEKA Electronik Dr. Schulze GmbH, our HEKA
Germany subsidiary (HEKA Germany) and HEKA Instruments Incorporated, our United States HEKA subsidiary (HEKA
U.S., and together with HEKA Canada and HEKA Germany. 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.
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 Canada to 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 U.S. to our Holliston, MA headquarters. These relocation
23
plans were completed as of December 31, 2015. 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 resumed earning revenue from the sale of these spectrophotometers on January 1, 2016 and continue to see potential
benefits from an expanded customer base for many of our other products.
During the third quarter of 2016, we initiated plans to sell the operations of our AHN Biotechnologie GmbH subsidiary
(AHN), located in Nordhausen, Germany. AHN is a manufacturer of liquid handling products which had revenues of $2.1
million in 2016. We concluded the sale of AHN in the fourth quarter of 2016, for gross cash proceeds of approximately $1.7
million.
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;
new product development;
strategic acquisitions; and
operational efficiencies.
In the table below, we provide an overview of selected operating metrics.
% of
Revenues
% of
Revenues
% of
Revenues
2014
2015
2016
(dollars in thousands)
Revenues .................................................. $ 104,521
56,106
Cost of revenues .......................................
20,486
Sales and marketing expenses ..................
20,950
General and administrative expenses .......
5,392
Research and development expenses ........
Restructuring (credits) charges .................
(4)
2,722
Amortization of intangible assets .............
Impairment charges ..................................
676
1,190
Loss on sale of AHN ................................
-
Gain on sale of assets ...............................
$ 108,664
59,941
20,577
19,832
6,420
788
2,819
-
-
-
53.7%
19.6%
20.0%
5.2%
0.0%
2.6%
0.6%
1.1%
0.0%
$ 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%
0.0%
54.6%
16.8%
15.5%
4.5%
0.9%
2.4%
0.0%
0.0%
0.7%
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 64%, 63% and 58% of our revenues for the
years ended December 31, 2016, 2015 and 2014, respectively.
24
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, 2016, 2015 and 2014, approximately 36%, 37% and 42% of our revenues, respectively, were derived from
sales to distributors.
For the years ended December 31, 2016, 2015 and 2014, approximately 62%, 62% and 65% of our revenues,
respectively, were derived from products we manufacture, approximately 14%, 13% and 10%, 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. Approximately 24%, 25% and 25% of our revenues, respectively, for the years ended
December 31, 2016, 2015, 2014 were derived from distributed products sold under our brand names.
For the years ended December 31, 2016, 2015 and 2014, approximately 38%, 40% and 41% of our revenues,
respectively, were derived from sales made by our non-United States operations. The decrease in international revenues was
primarily due to the effects of currency fluctuation, and the impact of softness in the European funding environment.
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. From time to time, we receive grants from governmental entities in relation to research
projects. Such grants received are accounted for as a reduction in research and development expense over the period of the
project. 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.
25
Stock-based compensation expenses. Stock-based compensation expense for the years ended December 31, 2016,
2015 and 2014 was $3.5 million, $2.8 million and $2.2 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.
Selected Results of Operations
Year Ended December 31, 2016 compared to Year Ended December 31, 2015
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 decreased 3.8%, or $4.2 million, to $104.5 million for the year ended December 31, 2016, compared to
revenues of $108.7 million for the year ended December 31, 2015.
Excluding the effects of currency translation, primarily from the weakening of the British Pound against the U.S. dollar,
our revenues decreased 1.8% or $2.0 million, from the previous year. The remainder of the decline in revenues was primarily
the result of softness in the European funding environment and slower than expected NIH budget funding, as well as less
revenues from AHN in 2016 compared to 2015, following its sale in October 2016, due to two fewer months of revenue
which amounted to approximately $0.5 million.
Reconciliation of Changes In Revenues Compared to the Same Period of the Prior Year
For the Year Ended
December 31, 2016
Decline ....................................................................................................................................................
Foreign exchange effect ..........................................................................................................................
Net revenue decline .................................................................................................................................
-1.8%
-2.0%
-3.8%
Cost of revenues
Cost of revenues were $56.1 million for the year ended December 31, 2016, a decrease of $3.8 million, or 6.4%,
compared with $59.9 million for the year ended December 31, 2015. Gross profit margin as a percentage of revenues
increased to 46.3% for the year ended December 31, 2016 compared with 44.8% for 2015. The increase in gross profit margin
was due primarily due to the savings associated with the relocation and consolidation of certain facilities in 2015.
Sales and marketing expenses
Sales and marketing expenses decreased $0.1 million, or 0.4%, to $20.5 million for the year ended December 31, 2016
compared with $20.6 million for the year ended December 31, 2015. The decrease was primarily due to favorable currency
translation and the impact of our restructuring activities.
26
General and administrative expenses
General and administrative expenses were $21.0 million for the year ended December 31, 2016, an increase of $1.2
million, or 5.6%, compared with $19.8 million for the year ended December 31, 2015. The increase was primarily due to
audit and forensic investigation costs, higher stock compensation expense, partially offset by favorable currency translation,
and the impact of our restructuring activities.
Research and development expenses
Research and development expenses were $5.4 million for the year ended December 31, 2016, a decrease of $1.0
million, or 16.0%, compared with $6.4 million for the year ended December 31, 2015. The decrease was primarily due to the
impact of our restructuring activities, favorable currency translation, and an increase in the amount of research grants earned.
Research grants earned are accounted for as a reduction in research and development expense.
Restructuring
Restructuring charges were immaterial for the year ended December 31, 2016 compared with $0.8 million for the year
ended December 31, 2015. There were no restructuring activities during the year ended December 31, 2016.
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 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 $2.7 million for the year ended December 31, 2016 compared with $2.8
million for the year ended December 31, 2015.
Impairment charges
During the third quarter of 2016, we initiated plans to sell the operations of AHN. As a result of initiating the plan to
sell the operations of AHN, we evaluated the long-lived assets for impairment, pursuant to ASC 360-10. Based on the
resulting impairment analysis, we recognized an impairment charge of $0.7 million for the year ended December 31, 2016.
Loss on sale of AHN
The loss on sale of AHN was $1.2 million for the year ended December 31, 2016. During the fourth quarter of 2016,
we concluded the sale of AHN. Upon the closing of the transaction, we recorded a loss on sale of $1.2 million for the year
ended December 31, 2016.
Other expense, net
Other expense, net, was $0.1 million and $1.9 million for the years ended December 31, 2016 and 2015, respectively.
Included in other expense, net for the year ended December 31, 2016 was interest expense of $0.6 million. For the year ended
December 31, 2015 other expense, net included $0.9 million of interest expense and $1.2 million of acquisition related costs,
including due diligence and deal investigative activities. The decrease in other expense, net was primarily due to the decrease
in acquisition related costs and currency exchange rate fluctuations. Currency exchange rate fluctuations included as a
component of net (loss) income resulted in approximately $0.7 million in currency gains during the year ended December
31, 2016, compared to $0.2 million in currency gains during the year ended December 31, 2015.
Income taxes
Income tax expense was approximately $1.2 million and $15.4 million for the years ended December 31, 2016 and
2015, respectively. The decrease 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
27
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.
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.
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.
28
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.
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. 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. Additionally, on October 26, 2016,
we sold the operations of AHN and received approximately $1.4 million, net of cash on hand.
29
As of December 31, 2016, we held cash and cash equivalents of $5.6 million, compared with $6.7 million at December
31, 2015. As of December 31, 2016 and December 31, 2015, we had $13.7 million and $18.7 million, respectively, of
borrowings outstanding under our credit facility. Total debt, net of cash and cash equivalents was $8.1 million at December
31, 2016, compared to $12.0 million at December 31, 2015. In addition, we had an underfunded United Kingdom pension
liability of approximately $3.0 million and $2.8 million at December 31, 2016 and December 31, 2015, respectively.
As of December 31, 2016 and December 31, 2015, cash and cash equivalents held by our foreign subsidiaries was $4.5
million and $5.7 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 repatriated approximately
$3.5 million during the year ended December 31, 2016. The total tax liability associated with the repatriation of undistributed
earnings in Canada and France was approximately $1.2 million, however it is anticipated that any taxable income generated
by the repatriation will be offset by the use of carried forward net operating losses. We currently have no plans 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.
Condensed Cash Flow Statements
(unaudited)
2016
Year Ended December 31,
2015
(in thousands)
2014
Cash flows from operations:
Net (loss) income ........................................................................... $
Changes in assets and liabilities .....................................................
Other adjustments to operating cash flows .....................................
Net cash provided by operating activities ...................................
(4,307) $
(41)
9,731
5,383
(19,039) $
(2,719)
22,463
705
Investing activities:
Additions to property, plant and equipment ...................................
Acquisitions, net of cash acquired ..................................................
Dispositions, net of cash on hand ...................................................
Other investing activities ................................................................
Net cash used by investing activities ..........................................
Financing activities:
Net (repayments of) proceeds from issuance of debt .....................
Other financing activities ...............................................................
Net cash used by financing activities .........................................
(1,445)
-
1,417
(34)
(62)
(5,050)
182
(4,868)
(2,960)
(4,545)
-
(12)
(7,517)
(2,550)
2,010
(540)
2,355
(4,514 )
6,510
4,351
(2,005 )
(12,653 )
-
1,141
(13,517 )
(3,300 )
2,066
(1,234 )
Effect of exchange rate changes on cash ............................................
(1,601)
(38)
(1,237 )
Decrease in cash and cash equivalents ............................................... $
(1,148) $
(7,390) $
(11,637 )
Our operating activities provided cash of $5.4 million, $0.7 million and $4.4 million for the years ended December 31,
2016, 2015 and 2014, respectively. The increase in cash flows from operations in 2016 compared to 2015 was primarily due
to a lower net loss with higher non-cash charges in 2016 and a decrease in inventory and receivables as compared to 2015.
The previous year was 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 decrease in cash flows from operations in 2015 compared to 2014 was
primarily due to lower operating income year over year.
30
Our investing activities used cash of $0.1 million during the year ended December 31, 2016, $7.5 million for the year
ended December 31, 2015, and $13.5 million for the year ended December 31, 2014. Investing activities during the 2016,
2015 and 2014 included purchases of property, plant and equipment, proceeds from the sale of property, plant and equipment
and expenditures for our catalogs. In addition, investing activities in 2016 included proceeds from the disposition of AHN,
net of cash on hand, of $1.4 million. Unique to 2015 and 2014, investing activities included acquisitions net of cash acquired.
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 2016, 2015 and 2014, capital expenditures were $1.4
million, $3.0 million and $2.0 million, respectively. The increases in capital expenditures in 2015 over 2014 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. Capital expenditure decreased in 2016, as the relocation activities were completed in 2015.
Our financing activities have historically consisted of borrowings and repayments under our revolving credit facility
and term loans, payments of debt issuance costs, and the issuance of common stock. During the years ended December 31,
2016, 2015 and 2014, financing activities used cash of $4.9 million, $0.5 million and $1.2 million , respectively. During the
year ended December 31, 2016, we borrowed $4.0 million under our credit facility, repaid $9.0 million of debt under our
credit facility and term loans and ended the year with $13.7 million of borrowings. Net proceeds from the issuance of common
stock for the year ended December 31, 2016 were $0.2 million, which related to the exercise of stock options and the employee
stock purchase plan. During the year ended December 31, 2015, we borrowed $5.8 million under our credit, 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 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
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 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. Between September 2011
and March 2016, we entered into a series of amendments that among other things did the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
on September 30, 2011, reduced interest rates to the London Interbank Offered Rate plus 3.0%;
on March 29, 2013, converted existing loan 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 a delayed draw term loan (“DDTL”) of up to $15.0 million (all with a maturity date
of March 29, 2018);
on October 31, 2013, reduced the DDTL from up to $15.0 million to up to $10.0 million;
on April 24, 2015, 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;
on June 30, 2015, amended our quarterly minimum fixed charge coverage financial covenant; and
on March 9, 2016, 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.
The maximum amount 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. Borrowings under the Term Loan and the DDTL accrue 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%. Additionally, the Revolving
Line accrues 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.
31
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest -
Simplifying the Presentation of Debt Issuance Costs. Under this guidance, debt issuance costs related to a recognized debt
liability should be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The
provisions of this guidance are to be applied retrospectively and are effective for interim and annual periods beginning after
December 15, 2015. We adopted this guidance as of January 1, 2016. The consolidated balance sheet as of December 31,
2015, included in these consolidated financial statements, reflects a restatement to reclassify unamortized deferred financing
costs of approximately $0.2 million from other long-term assets to long-term debt. For deferred financing costs paid to secure
long-term debt, we made a policy election to present such costs as a direct deduction from the debt liability on the consolidated
balance sheet.
The loans evidenced by the Credit Agreement, or the Loans, are guaranteed by all of our direct and indirect domestic
subsidiaries, and secured by substantially all of our assets and the guarantors. The Loans are subject to restrictive covenants
under the Credit Agreement, and financial covenants that require us 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
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, 2016 and December 31, 2015, we had borrowings of $13.7 million and $18.7 million, net of
deferred financing costs, respectively, outstanding under our Credit Agreement. The carrying value of the debt approximates
fair value because the interest rate under the obligation approximates market rates of interest available to us for
similar instruments. As of December 31, 2016, we were in compliance with all financial covenants contained in the Credit
Agreement, were subject to covenant and working capital borrowing restrictions and had available borrowing capacity under
our Credit Agreement of $8.7 million.
As of December 31, 2016, 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%, 3.73% and 3.02%, respectively.
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, 2016.
Total
2017
2018
2019
2020
2022 and
2021 Beyond
-
Bank credit facility and notes payable ............ $13,850 $ 2,450 $11,400 $
Operating leases ............................................. 9,993 1,600 1,614 1,489 1,284 1,087 2,919
Total ............................................................... $23,843 $ 4,050 $13,014 $ 1,489 $ 1,284 $ 1,087 $ 2,919
- $
- $
(in thousands)
- $
We have a liability at December 31, 2016 and 2015 of $0.4 million and $0.3 million, respectively 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, if any, related to this liability. Accordingly, this amount is not included in the
above table.
We have an underfunded United Kingdom pension liability of $3.0 million and $2.8 million as of December 31, 2016
and 2015, 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.
32
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.
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, 2016, we have a valuation allowance of $17.8 million, of which $17.4 million relates
to our U.S. deferred tax assets. The remainder relates to deferred tax assets in certain foreign jurisdictions.
33
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.
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, 2016, 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.
As a result of our initiation of plans to sell the operations of AHN during the third quarter of 2016, we conducted an
evaluation of AHN’s assets for impairment. Based on this evaluation, we recognized an impairment charge of $0.7 million
on its long-lived 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.
34
For the purpose of our goodwill analysis, we have one reporting unit. We conducted our annual impairment analysis in
the fourth quarter of fiscal year 2016. 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 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, 2016, 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 $2.1 million and a favorable effect on expenses
of approximately $1.9 million. During 2015, the U.S dollar’s strengthening in relation to those currencies also resulted in an
unfavorable translation effect on our consolidated revenues and 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 $1.0 million and an unfavorable effect on expenses of $0.8 million.
The loss associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive
(loss) income, was approximately $4.6 million, $4.9 million and $5.9 million for the years ended December 31, 2016, 2015
and 2014, respectively.
In addition, currency exchange rate fluctuations included as a component of net (loss) income resulted in gains of
approximately $0.7 million and $0.2 million during the years ended December 31, 2016 and 2015, respectively, compared to
a loss of approximately $0.2 million during the year ended December 31, 2014.
35
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. We expect to adopt this standard as of January 1,
2018 using the modified retrospective approach. We intend to complete a comprehensive assessment of our contracts in 2017
concerning any unique customer contract terms or transactions that could have implications to the timing of revenue
recognition under the new guidance. We expect this undertaking will be complete in the second half of 2017.
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.We will adopt this standard effective January 1, 2017. Adoption of this
guidance is not expected to have a material impact on our consolidated financial statements.
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 requirements of this guidance and have not yet determined the impact of the
adoption on our consolidated financial position, results of operations and cash flows, however, assets and liabilities will
increase upon adoption for right-of-use assets and lease liabilities. Our future commitments under lease obligations are
summarized in Note 14.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of
credit losses on Financial Instruments. The update amends the FASB’s guidance on the impairment of financial instruments.
The ASU adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based
on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of
expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is effective
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are evaluating the
impact of ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic
230) which amends ASC 230, Statement of Cash Flows to add or clarify guidance on the classification of certain cash receipts
and payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal year. We are evaluating the impact of ASU 2016-13 on our consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities and classification on the
statement of cash flows. We will adopt this standard effective January 1, 2017. Adoption of this guidance is not expected to
have a material impact on our consolidated financial statements; however, the impact in any given period will be dependent
upon changes in our stock price, the volume of employee stock option exercises and the timing of service- and performance-
based restricted unit vestings.
Recently Adopted Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt
Issuance Costs. Under this guidance, debt issuance costs related to a recognized debt liability should be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability. The provisions of this guidance are to be
applied retrospectively and are effective for interim and annual periods beginning after December 15, 2015. We adopted this
guidance as of January 1, 2016. The consolidated balance sheet as of December 31, 2015, included in these consolidated
financial statements, reflects a restatement to reclassify unamortized deferred financing costs of approximately $0.2 million
from other long-term assets to long-term debt. For deferred financing costs paid to secure long-term debt, we made a policy
election to present such costs as a direct deduction from the debt liability on the consolidated balance sheet.
36
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 was effective
for fiscal years beginning after December 15, 2015. We adopted ASU 2015-16 on January 1, 2016. The adoption of ASU
2015-16 did not have a material impact on our consolidated financial statements.
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. As of January 1, 2016, we early adopted the new guidance on a prospective basis and has presented all deferred
tax assets and deferred tax liabilities as noncurrent in the consolidated balance sheet December 31, 2016. Prior periods
presented in the consolidated financial statements were not retrospectively adjusted.
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, 2016, we had $13.7 million outstanding under our Credit Agreement.
On April 24, 2015, we entered an amendment to our Credit Agreement (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.
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,
2016 was $5.5 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-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.
37
As of December 31, 2016, 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%, 3.73% and 3.02%, 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, 2016 over the next twelve months
is quantified and summarized as follows:
If compared to the rate as of December 31, 2016
Interest expense
increase
Interest rates increase by 1% ......................................................................................................................... $
Interest rates increase by 2% ......................................................................................................................... $
(in thousands)
63
125
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, 2016.
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.
The Company identified control deficiencies related to current and deferred income taxes and inventory costing and
reserves for the year-ended December 31, 2015, which were assessed as material weaknesses. We developed a remediation
plan at the time, and we have designed and implemented certain new internal controls in an effort to remediate the material
weaknesses described below, but there is not yet adequate evidence over a reasonable period of time to determine that new
processes, procedures, controls and oversight relating to such new controls are effective. As a result, we concluded that these
material weaknesses were not fully remediated as of December 31, 2016.
38
(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, 2016
using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on this evaluation, our management concluded that material weaknesses in internal control over financial
reporting existed as of December 31, 2016 as described below:
The Company did not have sufficient resources within the organization with assigned accountability over the design
and operation of inventory controls at Multi Channel Systems MCS GmbH (MCS), an operating subsidiary, and over the
design and operation of income tax controls.
As a result, the Company failed to design and operate effective process level control activities over:
(cid:120)
(cid:120)
the accuracy of data and assumptions used in the measurement of inventory costs and inventory reserves at MCS.
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.
These control deficiencies resulted in immaterial misstatements in the preliminary financial statements, some of which
were corrected prior to the issuance of the consolidated financial statements as of and for the fiscal year ended December 31,
2016. The control deficiencies create a reasonable possibility that a material misstatement to the 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, 2016.
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 41 below.
(c)
Changes in Internal Controls Over Financial Reporting
During management’s evaluation of disclosure controls and procedures as of December 31, 2015, material weaknesses
in internal control over financial reporting were identified. Since the time of their identification, the Company’s management
has been actively engaged in the implementation of remediation efforts to address the material weaknesses. Remediation
efforts included an enhanced risk assessment process including additional reviews by qualified personnel at the proper
39
precision levels, and the preparation and retention of additional documentation supporting such reviews. Additionally, the
Company improved process activities with the addition of new controls associated with:
(cid:120) GITCs within the ERP system at Denville to restrict user access to their job responsibilities and segregation of duties,
the completeness and accuracy of data used in financial statement reconciliations at the Denville location, and
(cid:120)
the approval of manual journal entries at the Denville location, including review of the underlying information used
(cid:120)
to support them.
Other than the identification of the material weaknesses described above which originated in earlier periods, and
existed as of December 31, 2016, as well as the remediation of the previously identified material weaknesses, there were no
changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially
affect, the Company’s 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, and we
have designed and implemented certain new internal controls in an effort to remediate the material weaknesses described
above, but there is not yet adequate evidence over a reasonable period of time to determine that new processes, procedures,
controls and oversight relating to such new controls are effective. Specifically, we are in the process of implementing and
monitoring the following actions:
(cid:120)
(cid:120)
(cid:120)
evaluate the sufficiency and assignment of authorities and responsibilities and accountability over the inventory at
MCS and within the income tax department;
review the processes to measure inventory at MCS and design and implement controls to ensure the accuracy in
inventory measurement and reserves;
implement an ERP system at MCS, and associated controls, designed to ensure valuation 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.
40
(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, 2016, 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 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 sufficient resources within the organization with assigned accountability over the design
and operation of inventory controls at Multi Channel Systems MCS GmbH (MCS), an operating subsidiary, and over the design and
operation of income tax controls, ineffective process level control activities over the accuracy of data and assumptions used in the
measurement of inventory costs and inventory reserves at MCS, and the recognition, measurement, and disclosure of current and deferred
income taxes 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, 2016 and 2015, 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, 2016. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied
in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated March 16, 2017, which expressed
an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weakness 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, 2016, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We do not express an opinion or any other form of assurance on management’s statements referring to corrective actions taken after
December 31, 2016, relative to the aforementioned material weakness in internal control over financial reporting.
/s/ KPMG LLP
Cambridge, Massachusetts
March 16, 2017
41
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 2017 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 2017 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 2017 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 2017 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 2017 Annual Meeting of Stockholders.
42
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, 2016 and 2015 ............................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 ............... F-4
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2016,
2015 and 2014 ..............................................................................................................................................
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and
2014 ..............................................................................................................................................................
F-5
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 .............. 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.
43
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, 2016 and 2015 ...........................................................................
F-3
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 ...........................
F-4
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2016, 2015 and
2014 ..........................................................................................................................................................................
F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and 2014 ..........
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 .........................
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2016, 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, 2016, 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 March 16, 2017 expressed an adverse opinion on the effectiveness of the
Company’s internal control over financial reporting.
Cambridge, Massachusetts
March 16, 2017
/s/ KPMG LLP
F-2
HARVARD BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31, December 31,
2016
2015
Assets
Current assets:
Cash and cash equivalents ........................................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $611 and $310,
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.................................................................................................................
5,596 $
6,744
15,746
19,955
-
4,175
45,472
4,296
1,157
17,471
38,032
1,209
128
107,765 $
2,372 $
6,196
500
223
4,550
-
760
14,601
11,374
6,417
3,177
35,569
17,547
22,343
42
3,873
50,549
5,902
995
20,872
40,357
1,223
152
120,050
2,364
8,782
752
290
4,021
2,246
868
19,323
16,369
3,775
2,985
42,452
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;
42,186,827 and 41,724,772 shares issued and 34,441,320 and 33,979,265 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 ......................................................................... $
-
-
418
215,134
(116,030)
(16,658)
(10,668)
72,196
107,765 $
416
211,457
(111,723 )
(11,884 )
(10,668 )
77,598
120,050
See accompanying notes to consolidated financial statements.
F-3
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2015
2016
2014
Revenues ............................................................................................ $
Cost of revenues (exclusive of items shown separately below) .........
Gross profit .....................................................................................
104,521 $
56,106
48,415
108,664 $
59,941
48,723
108,663
59,319
49,344
Sales and marketing expenses ............................................................
General and administrative expenses .................................................
Research and development expenses ..................................................
Restructuring (credits) charges ...........................................................
Amortization of intangible assets .......................................................
Gain on sale of assets, net ..................................................................
Impairment charges ............................................................................
Loss on sale of AHN ..........................................................................
Total operating expenses, net .........................................................
20,486
20,950
5,392
(4)
2,722
-
676
1,190
51,412
20,577
19,832
6,420
788
2,819
-
-
-
50,436
18,225
16,826
4,880
1,027
2,578
(810 )
-
-
42,726
Operating (loss) income .....................................................................
(2,997)
(1,713)
6,618
Other income (expense):
Foreign exchange ...........................................................................
Interest expense ..............................................................................
Interest income ...............................................................................
Other expense, net ..........................................................................
Other expense, net ..............................................................................
(Loss) income before income taxes ....................................................
Income tax expense ............................................................................
Net (loss) income ...............................................................................
737
(642)
3
(179)
(81)
(3,078)
1,229
(4,307)
210
(854)
8
(1,259)
(1,895)
(3,608)
15,431
(19,039)
(Loss) earnings per share:
Basic (loss) earnings per common share ........................................ $
(0.13) $
(0.57) $
Diluted (loss) earnings per common share ..................................... $
(0.13) $
(0.57) $
(150 )
(990 )
74
(1,135 )
(2,201 )
4,417
2,062
2,355
0.07
0.07
Weighted average common shares:
Basic ...............................................................................................
Diluted ............................................................................................
34,212
34,212
33,593
33,593
32,171
33,237
See accompanying notes to consolidated financial statements.
F-4
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Year Ended December 31,
2015
2016
2014
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 hedges .................................................................................
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 tax expense of $52, $58 and $52 in 2016, 2015 and 2014,
respectively .................................................................................
Net (loss) gain, net of tax (benefit) expense of ($88), $241 and
$29 in 2016, 2015 and 2014, respectively ...................................
Defined benefit pension plans, net of tax .......................................
Other comprehensive loss ..................................................................
Comprehensive loss ............................................................................ $
(4,307) $
(19,039) $
2,355
(4,606)
(4,936)
(5,941 )
(29)
39
10
(85)
93
8
(99 )
130
31
252
248
207
(430)
(178)
(4,774)
(9,081) $
1,029
1,277
(3,651)
(22,690) $
114
321
(5,589 )
(3,234 )
See accompanying notes to consolidated financial statements.
F-5
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Number
of
Additional
Accumulated
Other
Total
Shares Common Paid-in Accumulated Comprehensive Treasury Stockholders’
Issued Stock
Income (Loss) Stock
Capital Deficit
Equity
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
171
196
-
(185)
3,497
(4,307)
(4,774)
72,196
Balance at December 31, 2013 ... 39,385 $
695
58
Stock option exercises ............
Stock purchase plan ................
Vesting of restricted stock
units .....................................
Shares withheld for taxes .......
Stock compensation expense ..
Net income .............................
Other comprehensive loss ......
233
(62)
-
-
-
Balance at December 31, 2014 ... 40,309
Stock option exercises ............ 1,772
59
Stock purchase plan ................
Vesting of restricted stock
units .....................................
Shares withheld for taxes .......
Stock compensation expense ..
Net loss ...................................
Other comprehensive loss ......
237
(652)
-
-
-
Balance at December 31, 2015 ... 41,725
375
81
Stock option exercises ............
Stock purchase plan ................
Vesting of restricted stock
390 $ 202,446 $
2,153
228
7
-
(95,039) $
-
-
(2,644) $ (10,668) $
-
-
-
-
-
-
-
-
-
-
(327)
2,156
-
-
397 206,656
2,605
25
208
-
-
(6)
-
-
-
-
(767)
2,755
-
-
416 211,457
167
196
4
-
-
-
-
2,355
-
(92,684)
-
-
-
-
-
(19,039)
-
(111,723)
-
-
-
-
-
-
-
-
-
-
(5,589)
-
(8,233) (10,668)
-
-
-
-
-
-
-
-
-
-
-
-
(3,651)
-
(11,884) (10,668)
-
-
-
-
units .....................................
Shares withheld for taxes .......
Stock compensation expense ..
Net loss ...................................
Other comprehensive loss ......
302
(296)
-
-
-
Balance at December 31, 2016 ... 42,187 $
-
(2)
-
-
-
-
-
-
(183)
-
3,497
(4,307)
-
-
-
418 $ 215,134 $ (116,030) $
-
-
-
-
(4,774)
-
-
-
-
-
(16,658) $ (10,668) $
See accompanying notes to consolidated financial statements.
F-6
HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net (loss) income ........................................................................... $
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Stock compensation expense ......................................................
Depreciation ...............................................................................
Impairment charges ....................................................................
Loss on sale of AHN ..................................................................
Loss (gain) on sale of assets, net ................................................
Non-cash restructuring (credit) ...................................................
Amortization of catalog costs .....................................................
Provision for (recovery of) allowance for doubtful accounts .....
Amortization of intangible assets ...............................................
Amortization of deferred financing costs ...................................
Deferred income taxes ................................................................
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ............................
Decrease (increase) in inventories ..........................................
(Increase) decrease in other receivables and other assets .......
(Decrease) increase in trade accounts payable .......................
Decrease in accrued income taxes ..........................................
Increase (decrease) in accrued expenses .................................
(Decrease) increase in deferred revenue .................................
Increase (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 disposition ..............................................................
Proceeds from sales of property, plant and equipment ...................
Acquisitions, net of cash acquired ..................................................
Net cash used in investing activities ...........................................
Cash flows provided by (used in) financing activities:
Proceeds from issuance of debt ......................................................
Repayments of debt ........................................................................
Payments of debt issuance costs .....................................................
Net proceeds from issuance of common stock ...............................
Net cash used in financing activities ..........................................
Effect of exchange rate changes on cash ............................................
Decrease in cash and cash equivalents ...............................................
Cash and cash equivalents at the beginning of period ........................
Cash and cash equivalents at the end of period .................................. $
Year Ended December 31,
2015
2016
2014
(4,307) $
(19,039) $
2,355
3,497
1,532
676
1,190
-
(27)
20
309
2,722
91
(279)
566
1,248
(658)
(2,413)
(195)
871
(187)
727
5,383
(1,445)
(34)
1,417
-
-
(62)
4,000
(9,050)
-
182
(4,868)
(1,601)
(1,148)
6,744
5,596 $
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)
(38)
(7,390)
14,134
6,744
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 )
(1,237 )
(11,637 )
25,771
14,134
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................................... $
Cash paid for income taxes, net of refunds .................................... $
620 $
928 $
854 $
963 $
997
843
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 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 ....................................................................................................................................
40 years
Machinery and equipment .......................................................................................................... 3 - 10 years
Computer equipment and software ............................................................................................. 3 - 7 years
Furniture and fixtures ................................................................................................................. 5 - 10 years
Automobiles ............................................................................................................................... 3 - 6 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.
(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, 2016, 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 2016. 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, 2016, 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,
2016, 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, 2016, the Company
concluded that none of its long-lived assets were impaired. However, as disclosed in footnote 8, as a result of the initiation
of plans to sell the operations of AHN, an operating subsidiary, during the third quarter of 2016, the Company conducted an
evaluation of AHN’s assets for impairment. Based on this evaluation, the Company recognized an impairment charge of $0.7
million on its long-lived assets.
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
F-11
condition and employee stock purchases (“employee stock purchases”) related to its Employee Stock Purchase Plan (as
amended, 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, 2016, 2015
and 2014 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 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. The Company expects to adopt this standard as of
January 1, 2018 using the modified retrospective approach. The Company intends to complete a comprehensive assessment
of its contracts in 2017 concerning any unique customer contract terms or transactions that could have implications to the
timing of revenue recognition under the new guidance. The Company expects this undertaking will be complete in the second
half of 2017.
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. The Company will adopt this standard effective January 1, 2017.
Adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
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 requirements of this guidance and has not yet determined the impact of
the adoption on its consolidated financial position, results of operations and cash flows, however, assets and liabilities will
increase upon adoption for right-of-use assets and lease liabilities. The Company’s future commitments under lease
obligations are summarized in Note 14.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of
credit losses on Financial Instruments. The update amends the FASB’s guidance on the impairment of financial instruments.
The ASU adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based
on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of
expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is effective
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is
evaluating the impact of ASU 2016-13 on its consolidated financial statements.
F-12
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic
230) which amends ASC 230, Statement of Cash Flows to add or clarify guidance on the classification of certain cash receipts
and payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal year. The Company is evaluating the impact of ASU 2016-13 on its consolidated
financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities and classification on the
statement of cash flows. The Company will adopt this standard effective January 1, 2017. Adoption of this guidance is not
expected to have a material impact on the Company's consolidated financial statements; however, the impact in any given
period will be dependent upon changes in the company's stock price, the volume of employee stock option exercises and the
timing of service and performance-based restricted unit vestings.
Recently Adopted Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt
Issuance Costs. Under this guidance, debt issuance costs related to a recognized debt liability should be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability. The provisions of this guidance are to be
applied retrospectively and are effective for interim and annual periods beginning after December 15, 2015. The Company
adopted this guidance as of January 1, 2016. The consolidated balance sheet as of December 31, 2015, included in these
consolidated financial statements, reflects a restatement to reclassify unamortized deferred financing costs of approximately
$0.2 million from other long-term assets to long-term debt. For deferred financing costs paid to secure long-term debt, the
Company made a policy election to present such costs as a direct deduction from the debt liability on the consolidated balance
sheet.
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 was effective
for fiscal years beginning after December 15, 2015. The Company adopted ASU 2015-16 on January 1, 2016. The adoption
of ASU 2015-16 did not have a material impact on its consolidated financial statements.
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. As of January 1, 2016, the Company early adopted the new guidance on a prospective basis and has presented
all deferred tax assets and deferred tax liabilities as noncurrent in the consolidated balance sheet at December 31, 2016. Prior
periods presented in the consolidated financial statements were not retrospectively adjusted.
3. Concentrations
No customer accounted for more than 10% of the revenues for the years ended December 31, 2016, 2015 and 2014. At
December 31, 2016 and 2015, no customer accounted for more than 10% of net accounts receivable.
F-13
4. Accumulated Other Comprehensive Loss
Changes in each component of accumulated other comprehensive loss, net of tax are as follows:
(in thousands)
Foreign currency Derivatives
qualifying as
translation
adjustments
hedges
Defined benefit
pension plans
Total
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
Net other comprehensive (loss) income ...............
(4,936)
8
1,277
(3,651)
Balance at December 31, 2015 .......................... $
(9,594) $
(10) $
(2,280 ) $
(11,884)
Other comprehensive (loss) income before
reclassifications.................................................
Amounts reclassified from AOCI .........................
(4,606)
-
(29)
39
(430 )
252
(5,065)
291
Other comprehensive (loss) income .....................
(4,606)
10
(178 )
(4,774)
Balance at December 31, 2016 ........................... $
(14,200) $
- $
(2,458 ) $
(16,658)
The amounts reclassified out of accumulated other comprehensive (loss) income are as follows:
(in thousands)
Amounts Reclassified From AOCI
Derivatives qualifying as hedges
Realized loss on derivatives qualifying as
hedges .....................................................
Income tax .................................................
Defined benefit pension plans
Amortization of net losses included in net
Affected line item in the
Statements of Operations
Interest expense
Income tax (benefit) expense
$
periodic pension costs ............................. General and administrative expenses
Income tax .................................................
Income tax (benefit) expense
Year Ended December 31,
2015
2016
2014
39 $
-
39
304
(52)
252
93 $
-
93
306
(58)
248
130
-
130
259
(52)
207
Total reclassifications ............................................................................................... $
291 $
341 $
337
5. Inventories
Inventories consist of the following:
Finished goods................................................................................................................. $
Work in process ...............................................................................................................
Raw materials ..................................................................................................................
Total ............................................................................................................................ $
(in thousands)
9,340 $
823
9,792
19,955 $
10,957
888
10,498
22,343
December 31, December 31,
2016
2015
F-14
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, December 31,
2016
2015
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)
2,095 $
7,224
8,115
1,274
196
18,904
(14,608)
4,296 $
2,825
10,131
7,503
1,358
103
21,920
(16,018 )
5,902
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.
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
(2,426 )
1,739
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 ............................................................................................................................ $
1,668
774
1,627
1,338
27
(1,245 )
4,189
5,928
Goodwill recorded as a result of the acquisition of HEKA is not deductible for tax purposes.
In the second quarter of 2016, an immaterial correction was made to the allocation of the aggregate purchase price to
the tangible and intangible assets acquired to increase both accrued liabilities and goodwill by $50,000 as of June 30, 2016.
This correction has been reflected in the table above.
F-15
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, 2014. 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.
Pro Forma
Revenues ..................................................................................................................... $
Net (loss) income ........................................................................................................
108,761 $
(19,027)
114,185
2,646
Year Ended December 31,
2015
2014
(in thousands)
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.
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.
F-16
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
(in thousands)
Pro Forma
Revenues ................................................................................................................................................... $
Net income ................................................................................................................................................
114,066
2,600
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.
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
$0.1 million, $1.2 million and $1.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
8. Disposition
On October 26, 2016, the Company sold the operations of its AHN Biotechnologie GmbH subsidiary (AHN), a
manufacturer of liquid handling products, located in Nordhausen, Germany for gross cash proceeds of approximately $1.7
million. Proceeds received at closing, net of cash on hand, were approximately $1.4 million. The results of operations of
AHN, through the date of sale, have been reported in the Company’s consolidated statements of operations for the year ended
December 31, 2016.
F-17
As a result of the initiation of plans to sell the operations of AHN, during the third quarter of 2016, the Company
evaluated the long-lived assets of AHN for impairment, pursuant to ASC 360-10. Based on the impairment analysis, the
carrying amount of the long-lived assets exceeded the fair value of the long-lived assets as determined using the probability
weighted present value of future cash flows. Consequently, the Company recognized an impairment charge of $0.7 million
for the year ended December 31, 2016 in operating expenses within its statements of operations. Of the overall charge,
approximately $0.1 million was allocated to AHN’s intangible assets (trade name and customer relationships), while $0.6
million was allocated to its property, plant and equipment (machinery and equipment).
Upon the closing of the transaction, the Company recorded a loss on sale of $1.2 million for the year ended December
31, 2016 in operating expenses within the statements of operations. On October 26, 2016, the major classes of assets and
liabilities of AHN disposed of, including an allocation of goodwill, were comprised of the following:
Assets
Accounts receivable, net ............................................................................................................................ $
Inventory ...................................................................................................................................................
Property, plant and equipment, net ............................................................................................................
Amortizable intangibles, net ......................................................................................................................
Allocation of goodwill ...............................................................................................................................
279
438
919
196
484
(in thousands)
Liabilities
Accounts payable and accrued expenses ................................................................................................... $
245
9. Goodwill and Other Intangible Assets
Intangible assets consist of the following:
December 31, 2016 December 31, 2015
(in thousands)
Weighted
Average
Life
(a)
Amortizable intangible assets:
Existing technology ........................................................... $15,082 $
Trade names ...................................................................... 7,379
Distribution agreements/customer relationships ............... 22,976
204
Patents ...............................................................................
Total amortizable intangible assets ................................... 45,641 $
Gross
Accumulated
Amortization Gross
Accumulated
Amortization
(11,710) $16,022 $
(3,479) 7,636
(12,862) 23,676
245
(28,170) 47,579 $
(119)
(11,686) 7.0 Years
(3,076) 8.0 Years
(11,849) 9.0 Years
(96) 2.2 Years
(26,707)
Indefinite-lived intangible assets:
Goodwill ............................................................................ 38,032
Other indefinite-lived intangible assets ............................. 1,209
Total goodwill and other indefinite-lived intangible
40,357
1,223
assets .............................................................................. 39,241
41,580
Total intangible assets ....................................................... $84,882
$89,159
F-18
(a) Weighted average life as of December 31, 2016.
The change in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 is as follows:
Balance at December 31, 2014 ...................................................................................................................... $
Goodwill arising from business combination ............................................................................................
Adjustment to purchase price allocation of prior year acquisition ............................................................
Effect of change in currency translation ....................................................................................................
Balance at December 31, 2015 ......................................................................................................................
Adjustment to purchase price allocation of prior year acquisition ............................................................
Adjustment to goodwill for AHN disposition ...........................................................................................
Effect of change in currency translation ....................................................................................................
Balance at December 31, 2016 ...................................................................................................................... $
(in thousands)
39,822
1,618
372
(1,455 )
40,357
50
(484 )
(1,891 )
38,032
Intangible asset amortization expense was $2.7 million, $2.8 million and $2.6 million for the years ended December
31, 2016, 2015 and 2014, respectively. Amortization expense of existing amortizable intangible assets is currently estimated
to be $2.4 million for the year ending December 31, 2017, $2.2 million for the year ending December 31, 2018, $2.1 million
for the year ending December 31, 2019, $2.1 million for the year ending December 31, 2020 and $2.0 million for the year
ending December 31, 2021.
10. Restructuring and Other Exit Costs
During 2014, and 2015, the Company entered into various restructuring plans, which included eliminating certain
positions made redundant as a result of its site consolidations, as well as a realignment of its commercial sales team. 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. Activity and liability balances related to these charges for the year ended December 31, 2016,
were as follows:
Severance Costs
Other
(in thousands)
Total
Restructuring balance at December 31, 2015 ..................................... $
Restructuring charges .........................................................................
Non-cash reversal of restructuring charges ........................................
Cash payments....................................................................................
Effect of change in currency translation .............................................
Restructuring balance at December 31, 2016 ..................................... $
132 $
-
(27)
(104)
(1)
- $
- $
23
-
(28)
5
- $
132
23
(27 )
(132 )
4
-
For the year ended December 31, 2015, the activity and liability balances related to these charges were as follows:
Severance Costs
Other
(in thousands)
Total
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 ..................................... $
626 $
434
(85)
(833)
(10)
132 $
- $
439
-
(439)
-
- $
626
873
(85 )
(1,272 )
(10 )
132
F-19
For the year ended December 31, 2014, the activity and liability balances related to restructuring charges were as
follows:
Restructuring balance at December 31, 2013 ..................................... $
Restructuring charges .........................................................................
Non-cash reversal of restructuring charges ........................................
Cash payments....................................................................................
Restructuring balance at December 31, 2014 ..................................... $
1,437 $
854
(120)
(1,545)
626 $
- $
306
(13)
(293)
- $
1,437
1,160
(133 )
(1,838 )
626
Severance Costs
Other
(in thousands)
Total
Aggregate net restructuring charges for the years ended December 31, 2016, 2015 and 2014 were as follows:
2016
Year Ended December 31,
2015
(in thousands)
2014
Restructuring (credits) charges ........................................................... $
(4) $
788 $
1,027
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 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. Between September 2011 and March 2016, the Company entered into a series of amendments that among other
things did the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
on September 30, 2011, reduced interest rates to the London Interbank Offered Rate plus 3.0%;
on March 29, 2013, converted existing loan 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 a delayed draw term loan (“DDTL”) of up to $15.0 million (all with a maturity date
of March 29, 2018);
on October 31, 2013, reduced the DDTL from up to $15.0 million to up to $10.0 million;
on April 24, 2015, 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;
on June 30, 2015, amended our quarterly minimum fixed charge coverage financial covenant; and
on March 9, 2016, 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.
The maximum amount 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. Borrowings under the Term Loan and the DDTL accrue 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 accrues 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.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest -
Simplifying the Presentation of Debt Issuance Costs. Under this guidance, debt issuance costs related to a recognized debt
liability should be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The
provisions of this guidance are to be applied retrospectively and are effective for interim and annual periods beginning after
December 15, 2015. The Company adopted this guidance as of January 1, 2016. The consolidated balance sheet as of
December 31, 2015, included in these consolidated financial statements, reflects a restatement to reclassify unamortized
deferred financing costs of approximately $0.2 million from other long-term assets to long-term debt. For deferred financing
F-20
costs paid to secure long-term debt, the Company made a policy election to present such costs as a direct deduction from the
debt liability on the consolidated balance sheet.
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, 2016 and December 31, 2015, the Company had borrowings of $13.7 million and $18.7 million,
net of deferred financing costs, respectively, outstanding under its Credit Agreement. The carrying value of the debt
approximates fair value because the interest rate under the obligation approximates market rates of interest available to the
Company for similar instruments. As of December 31, 2016, 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 $8.7 million.
As of December 31, 2016, 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%, 3.73% and 3.02%, respectively.
As of December 31, 2016 and December 31, 2015, the Company’s borrowings were comprised of:
December 31, December 31,
2016
2015
(in thousands)
Long-term debt:
Term loan .................................................................................................................... $
DDTL ..........................................................................................................................
Revolving line .............................................................................................................
Total unamortized deferred financing costs ................................................................
Total debt ........................................................................................................................
Less: current installments ............................................................................................
Current unamortized deferred financing costs .............................................................
Long-term debt ................................................................................................................ $
5,400 $
4,400
4,050
(104)
13,746
(2,450)
78
11,374 $
6,750
5,500
6,650
(167 )
18,733
(2,450 )
86
16,369
The aggregate amounts of debt maturing during the next five years are as follows:
2017 ............................................................................................................................................................... $
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
2020 ...............................................................................................................................................................
2021 ...............................................................................................................................................................
Total .............................................................................................................................................................. $
2,450
11,400
-
-
-
13,850
(in thousands)
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
F-21
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 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, 2016 was $5.5
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 2.75%. 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 2.75%.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, 2016 and December 31, 2015.
Derivatives designated as hedging instruments
under ASC 815
Balance sheet classification
Interest rate swaps ...................................................... Other liabilities-non current
$
(in thousands)
5,500 $
-
December 31,
2016
Notional
Amount
December 31,
2016
Fair
Value (a)
Derivatives designated as hedging instruments
under ASC 815
Balance sheet classification
Interest rate swaps ...................................................... Other liabilities-non current
$
(in thousands)
9,500 $
(10 )
(a) See Note 13 for the fair value measurements related to these financial instruments.
December 31,
2015
Notional
Amount
December 31,
2015
Fair
Value (a)
F-22
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, 2016, 2015 and 2014:
Derivatives in Hedging Relationships
Amount of gain or (loss) recognized in OCI on
derivative (effective portion)
Year Ended December 31,
2015
(in thousands)
2016
2014
Interest rate swaps .............................................................................. $
(29) $
(85) $
(99 )
The following table summarizes the reclassifications out of accumulated other comprehensive loss for the years ended
December 31, 2016, 2015 and 2014:
Details about AOCI Components
Amount reclassified from AOCI into income
(effective portion)
Year Ended December 31,
2015
(in thousands)
2016
2014
Location of
amount
reclassified
from AOCI into
income
(effective
portion)
Interest rate swaps ................................................ $
39 $
93 $
130 Interest expense
As of December 31, 2016, the deferred losses on derivative instruments accumulated in AOCI expected to be
reclassified to earnings during the next twelve months were immaterial. 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 2016 or 2015.
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.
F-23
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, 2016
Level 1
Level 2
Level 3
Total
Interest rate swap agreements ........................... $
- $
- $
- $
-
(In thousands)
Liabilities:
Fair Value as of December 31, 2015
Level 1
Level 2
Level 3
Total
Interest rate swap agreements ........................... $
- $
10 $
- $
10
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
2021 and thereafter. Rent expense, which is recorded on a straight-line basis, was $1.8 million, $2.1 million and $1.7 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year at December
31, 2016, are as follows:
2017 ............................................................................................................................................................... $
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
2020 ...............................................................................................................................................................
2021 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Net minimum lease payments ....................................................................................................................... $
(in thousands)
1,600
1,614
1,489
1,284
1,087
2,919
9,993
Operating
Leases
15. Accrued Expenses
Accrued expenses consist of:
Accrued compensation and payroll ................................................................................. $
Accrued professional fees ...............................................................................................
Accrued severance ...........................................................................................................
Warranty costs .................................................................................................................
Other ................................................................................................................................
Total ................................................................................................................................ $
December 31,
2016
2015
(in thousands)
1,468 $
1,105
-
193
1,784
4,550 $
1,264
1,055
132
147
1,423
4,021
F-24
16. Income Tax
Income tax expense attributable to income from operations for the years ended December 31, 2016, 2015 and 2014
consisted of:
Current income tax expense:
Federal and state ............................................................................. $
Foreign ...........................................................................................
Deferred income tax expense:
Federal and state .............................................................................
Foreign ...........................................................................................
Total income tax expense ................................................................... $
2016
Year Ended December 31,
2015
(in thousands)
2014
170 $
790
960
166
103
269
1,229 $
(4) $
677
673
15,598
(840)
14,758
15,431 $
27
424
451
1,793
(182 )
1,611
2,062
Income tax expense for the years ended December 31, 2016, 2015 and 2014 differed from the amount computed by
applying the U.S. federal income tax rate of 34% to pre-tax operations income as a result of the following:
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 foreign rate change .........................................................
Tax credits ......................................................................................
Change in reserve for uncertain tax position ..................................
Impact of change to prior year tax accruals ....................................
U.S. tax on foreign dividends .........................................................
Foreign withholding taxes ..............................................................
Conversion of U.S. foreign tax credits from credit to deduction ....
Non-deductible loss on subsidiary stock sale .................................
Change in valuation allowance allocated to income .......................
tax expense (benefit) ..................................................................
Other ...............................................................................................
Total income tax expense ................................................................... $
2016
Year Ended December 31,
2015
(in thousands)
2014
(1,046) $
(1,227) $
1,503
(128)
165
(93)
110
30
(89)
127
291
497
74
1,772
501
(983)
1
1,229 $
32
(12)
82
(161)
89
(169)
35
370
-
-
-
-
16,401
(9)
15,431 $
(93 )
(364 )
22
67
-
(385 )
-
-
-
-
-
-
1,346
(34 )
2,062
Income tax expense is based on the following pre-tax (loss) income from operations for the years ended December 31,
2016, 2015 and 2014:
Domestic ............................................................................................ $
Foreign ...............................................................................................
Total ................................................................................................... $
(3,107) $
29
(3,078) $
(3,331) $
(277)
(3,608) $
1,846
2,571
4,417
2016
Year Ended December 31,
2015
(in thousands)
2014
F-25
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred
tax liabilities from operations at December 31, 2016 and 2015 are as follows:
Deferred tax assets:
Accounts receivable .................................................................................................... $
Inventory .....................................................................................................................
Operating loss and credit carryforwards ......................................................................
Property, plant and equipment .....................................................................................
Accrued expenses ........................................................................................................
Pension liabilities ........................................................................................................
Contingent consideration .............................................................................................
Tax credits on repatriation ...........................................................................................
Stock compensation expense .......................................................................................
Other assets .................................................................................................................
Total gross deferred assets ..............................................................................................
Less: valuation allowance ...........................................................................................
Deferred tax assets .......................................................................................................... $
Deferred tax liabilities:
Indefinite-lived intangible assets ................................................................................. $
Definite-lived intangible assets ...................................................................................
Accrued tax liability on repatriation ............................................................................
Other accrued liabilities ...............................................................................................
Total deferred tax liabilities ............................................................................................
Net deferred tax liabilities ............................................................................................... $
December 31,
2016
2015
(in thousands)
170 $
1,336
12,586
5
-
631
3,262
-
2,076
23
20,089
(17,840)
2,249 $
4,567 $
2,593
-
349
7,509
(5,260) $
45
1,447
14,456
18
107
535
2,987
1,728
1,491
588
23,402
(18,823 )
4,579
4,593
2,587
1,728
655
9,563
(4,984 )
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.
The Company’s deferred tax assets in the table above as of December 31, 2016 and December 31, 2015, do not include
any 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. As of December 31, 2016 and
2015, the Company’s operating loss carryforwards included $1.6 million in income tax deductions related to stock options,
the benefit of which will be reflected as a credit to additional paid-in capital if realized, of which $0.9 million arose in 2015.
The amounts recorded as deferred tax assets as of December 31, 2016 and 2015 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 deferred tax liabilities associated with certain indefinite-lived intangible assets. The Company’s
judgment was based on consideration of all available evidence. At December 31, 2016, a full valuation allowance continues
to be maintained on net U.S. deferred tax assets.
At December 31, 2016, the Company had federal net operating loss carryforwards of $21.4 million, which begin to
expire in 2022 and state net operating loss carryforwards of $8.9 million, which begin to expire in 2017. The Company also
had foreign tax credit carryforwards of $1.0 million which expire in 2017, and research and development tax credit
carryforwards of $1.6 million which begin to expire in 2020. The Company had $0.2 million of alternative minimum tax
credit carryforwards which are not subject to expiration. In addition, the Company had a total of $0.9 million of state
investment tax credit carryforwards, research and development tax credit carryforwards, and EZ credit carryforwards, which
begin to expire in 2017. Approximately $4.7 million of net operating losses are subject to an annual limitation of $0.7 million
imposed by change in 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.
F-26
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $48.6 million, $48.7 million,
and $51.9 million at December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, cash and cash
equivalents held by the Company’s foreign subsidiaries was $4.5 million and $5.7 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 repatriated approximately $3.5 million during the
year ended December 31, 2016, which comprised all of the funds available for repatriation. The total tax liability of
approximately $1.2 million associated with the repatriation of undistributed earnings in Canada and France, will be offset by
the use of carried forward net operating losses. The Company does not intend to repatriate any of the undistributed foreign
earnings in any other countries. 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 2014, the Company utilized
approximately $11.2 million of foreign cash to acquire all issued and outstanding shares of MCS, a German manufacturer. In
2015, the Company utilized approximately $5.9 million of foreign cash to acquire all issued and outstanding shares of HEKA,
a manufacturer with operations in Germany and Canada. In 2015, the Company also used $0.3 million of foreign cash on
hand for capital improvements at AHN, a German subsidiary.
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. In 2016, the Company recorded a tax reserve in the amount
of $59,000 related to the disposition of a foreign subsidiary. Additionally in 2016, the Company recorded a reserve for
$62,000 related to issues raised in an ongoing German income tax audit. A reconciliation of uncertain tax liabilities is as
follows:
Balance at December 31, 2014 ...................................................................................................................... $
Additions based on tax positions of prior years ............................................................................................
Balance at December 31, 2015 ......................................................................................................................
Additions based on current year tax positions ...............................................................................................
Additions based on tax positions of prior years ............................................................................................
Balance at December 31, 2016 ...................................................................................................................... $
(in thousands)
250
35
285
59
62
406
At December 31, 2016 and 2015 the amount of unrecognized tax benefits that would affect the Company’s effective
tax rate was $0.4 million and $0.3 million, respectively. The Company classifies interest and penalties related to unrecognized
tax benefits as a component of income tax expense. For the years ended December 31, 2016 and 2015, respectively, interest
recognized in the consolidated statement of operations was immaterial, and there were no penalties recognized.
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 2012. 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 and during 2016, various transfer pricing issues were raised, for which the Company has recorded
a reserve in the amount of $62,000. In June 2015, the Company’s acquired German subsidiary, HEKA, closed an income tax
audit for 2008-2012 with no material adjustments. In 2016, HEKA closed an income tax audit for 2013-2014 with no material
adjustments. The Company is not aware of any tax audits in other major jurisdictions.
F-27
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, 2016, 2015 and 2014, the Company contributed
approximately $0.6 million, $0.5 million and $0.5 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:
Components of net periodic benefit cost:
Interest cost ........................................................................................
Expected return on plan assets ...........................................................
Net amortization loss ..........................................................................
Net periodic benefit cost ..................................................................... $
2016
Year Ended December 31,
2015
(in thousands)
2014
632
(683)
304
253 $
711
(668)
306
349 $
893
(649 )
259
503
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, 2016 and 2015 is as follows:
December 31,
2016
2015
(in thousands)
Change in benefit obligation:
Balance at beginning of year ....................................................................................... $
Interest cost .................................................................................................................
Actuarial loss (gain) ....................................................................................................
Benefits paid ................................................................................................................
Currency translation adjustment ..................................................................................
Balance at end of year ................................................................................................. $
18,582 $
632
4,636
(982)
(3,654)
19,214 $
21,170
711
(1,360 )
(1,021 )
(918 )
18,582
Change in fair value of plan assets:
Balance at beginning of year ....................................................................................... $
Actual return on plan assets .........................................................................................
Employer contributions ...............................................................................................
Benefits paid ................................................................................................................
Currency translation adjustment ..................................................................................
Balance at end of year ................................................................................................. $
15,767 $
3,868
694
(982)
(3,095)
16,252 $
16,724
70
752
(1,021 )
(758 )
15,767
December 31,
2016
2015
(in thousands)
F-28
December 31,
2016
2015
(in thousands)
Change in benefit obligation:
Funded status ................................................................................................................... $
Unrecognized net loss .....................................................................................................
Net amount recognized .................................................................................................... $
(2,962) $
N/A
(2,962) $
(2,815 )
N/A
(2,815 )
The accumulated benefit obligation for all defined benefit pension plans was $19.2 million and $18.6 million at
December 31, 2016 and 2015, respectively.
The amounts recognized in the consolidated balance sheets consist of:
December 31,
2016
2015
(in thousands)
Deferred income tax assets .............................................................................................. $
Other long term liabilities ................................................................................................
Net amount recognized .................................................................................................... $
504 $
(2,962)
(2,458) $
535
(2,815 )
(2,280 )
The amounts recognized in accumulated other comprehensive loss, net of tax consist of:
Underfunded status of pension plans ............................................................................... $
Net amount recognized .................................................................................................... $
December 31,
2016
2015
(in thousands)
(2,458) $
(2,458) $
(2,280 )
(2,280 )
The weighted average assumptions used in determining the net pension cost for these plans follows:
Year Ended December 31,
2015
2016
2014
Discount rate .....................................................................................
Expected return on assets ..................................................................
2.62%
4.68%
3.57%
4.43%
4.43%
4.15%
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 one percent increase/decrease in the discount
rate assumption would decrease/increase annual pension expense by approximately $30,000.
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, 2016, 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 one percent increase/decrease in the asset return assumption would decrease/increase annual pension expense by
approximately $163,000.
F-29
The fair value and asset allocations of the Company’s pension benefits as of December 31, 2016 and 2015 measurement
dates were as follows:
Asset category:
2016
December 31,
(in thousands)
2015
Equity securities ............................................... $
Debt securities ..................................................
Cash and cash equivalents ................................
Total ................................................................. $
8,577
7,447
228
16,252
53% $
46%
1%
100% $
8,506
7,103
158
15,767
54%
45%
1%
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, 2016 and 2015 is as follows:
December 31,
2016
2015
(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 ............................................................................................................................ $
228 $
16,024
-
16,252 $
158
15,609
-
15,767
Level 1 assets consist of cash and cash equivalents held in the pension plans at December 31, 2016. 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. Included in Level 3 assets is 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 to $0.
The Company expects to contribute approximately $0.7 million to its pension plans during 2017.
The benefits expected to be paid from the pension plans are $0.5 million in 2017, $0.4 million in 2018, $0.6 million in
2019, $0.5 million in 2020 and $0.5 million in 2021. The expected benefits to be paid in the five years from 2021—2025 are
$3.6 million. The expected benefits are based on the same assumptions used to measure the Company’s benefit obligation at
December 31, 2016.
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.
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.
F-30
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, 2016, 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 725,239 shares were issued as of December 31, 2016. During
the years ended December 31, 2016, 2015 and 2014, the Company issued 81,228 shares, 58,823 shares and 57,848,
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, 2016, 2015 and 2014, incentive stock options to purchase 10,218,057 shares and non-qualified
stock options to purchase 13,131,374, 13,088,374 and 12,143,374 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, 2016, the target number of these restricted stock units that may be earned is 182,150 shares; the maximum
amount is 150% of the target number.
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.
F-31
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,
2015
2016
2014
Basic ...................................................................................................
Effect of assumed conversion of employee and director stock
34,211,521
33,592,775
32,170,683
options, restricted stock units and Market Condition RSU's ...........
Diluted ................................................................................................
-
34,211,521
-
33,592,775
1,065,886
33,236,569
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 5,351,261, 5,521,283 and 2,526,641 shares of common
stock for the years ended December 31, 2016, 2015 and 2014, 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 Price
Weighted
Average Restricted
Exercise Stock Units Grant Date Condition RSU's Grant Date
Fair Value
Outstanding Fair Value Outstanding
Market
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
43,000
(374,772)
-
(593,596)
Balance at December 31, 2016 ....... 4,096,818 $
Granted .......................................
Exercised ....................................
Vested (RSUs) ............................
Cancelled / forfeited ...................
3.42 463,973 $
4.18 116,400
-
3.08
- (233,098)
4.67
(40,878)
3.42 306,397
5.31 254,685
-
3.04
- (237,188)
4.15
(10,335)
3.85 313,559
3.10 1,095,190
-
2.80
- (301,520)
(34,576)
3.84
3.94 1,072,653 $
4.32
4.12
-
-
4.36
4.30
5.56
-
-
5.56
5.29
2.92
-
-
3.89
3.15
- $
-
-
-
-
-
196,785
-
-
(11,247)
185,538
-
-
-
(3,388)
182,150 $
-
-
-
-
-
-
4.81
-
-
4.81
4.81
-
-
-
4.81
4.81
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.
F-32
The following table summarizes information concerning currently outstanding and exercisable options as of
December 31, 2016 (Aggregate Intrinsic Value, in thousands):
Options Outstanding
Weighted
Average
Options Exercisable
Weighted
Average
Range of
Exercise
Price
Shares
Weighted
Average Aggregate
Outstanding at Contractual Life Exercise Intrinsic Exercisable at Contractual Life Exercise Intrinsic
Dec. 31, 2016
Weighted
Average Aggregate
Dec. 31, 2016
Remaining
Remaining
Value
Value
Price
in Years
in Years
Price
Shares
$2.02-2.42 .........
2.43-2.72 ...........
2.73-3.68 ...........
3.69-4.07 ...........
4.08-4.17 ...........
4.18-4.26 ...........
4.27-4.41 ...........
4.42-5.39 ...........
5.40-5.51 ...........
5.52-5.63 ...........
$2.02-5.63 .........
462,464
436,028
511,706
411,070
653,875
71,500
750,000
161,800
353,375
285,000
4,096,818
2.13
4.60
6.10
3.75
7.41
7.65
6.88
7.92
8.18
8.41
6.05
$
$
2.21 $
2.57
3.50
3.97
4.12
4.21
4.31
4.97
5.51
5.56
3.94 $
388
209
-
-
-
-
-
-
-
-
597
462,464
436,028
344,052
393,570
321,875
37,625
687,500
79,117
89,750
71,250
2,923,231
2.13
4.60
5.33
3.53
7.41
7.61
6.88
7.86
8.18
8.41
5.33
$
$
2.21 $
2.57
3.59
3.98
4.12
4.21
4.31
4.92
5.51
5.56
3.65 $
388
209
-
-
-
-
-
-
-
-
597
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s
closing stock price of $3.05 as of December 31, 2016, 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, 2016, 2015 and 2014 was approximately $0.1 million, $0.8 million and $1.8 million, respectively. The total number of
in-the-money options that were exercisable as of December 31, 2016 was 914,492.
For the year ended December 31, 2016, the total compensation costs related to unvested awards not yet recognized is
$3.8 million and the weighted average period over which it is expected to be recognized is 2.07 years.
Valuation and Expense Information under Stock-Based-Payment Accounting
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, 2016, 2015 and 2014 was allocated as follows:
2016
Year Ended December 31,
2015
(in thousands)
2014
Cost of revenues ................................................................................. $
Sales and marketing ...........................................................................
General and administrative .................................................................
Research and development .................................................................
Total stock-based compensation......................................................... $
60 $
546
2,780
111
3,497 $
70 $
418
2,170
97
2,755 $
132
343
1,620
61
2,156
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.
F-33
The weighted-average estimated fair value per share of stock options granted during 2016, 2015 and 2014 was $1.21,
$2.12 and $2.18, respectively, using the Black Scholes option-pricing model with the following weighted-average
assumptions:
Volatility ............................................................................................
Risk-free interest rate .........................................................................
Expected holding period (in years) ..................................................... 5.21 years
Dividend yield ....................................................................................
-%
Year Ended December 31,
2015
40.97%
1.72%
2016
41.97%
1.29%
2014
55.78%
1.80%
5.50 years
5.76 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, 2016. 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, 2016, 2015 and 2014 is based on awards ultimately expected to vest and has been reduced for annualized
estimated forfeitures of 8.41%, 8.06% and 7.05%, 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.
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, 2016.
Pursuant to a lease agreement, the Company incurred rent expense of approximately $0.2 million to the former owners of
MCS for both of the years ended December 31, 2016 and 2015, respectively, and $62,000 for the year ended December 31,
2014. Pursuant to a lease agreement, the Company incurred rent expense of approximately $42,000 to the former owner of
TBSI for both of the years ended December 31, 2016 and 2015, respectively, and $11,000 for the year ended December 31,
2014.
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. 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:
F-34
Revenues originating from the following geographic areas consist of:
2016
Year Ended December 31,
2015
(in thousands)
2014
United States ...................................................................................... $
Germany .............................................................................................
United Kingdom .................................................................................
Rest of the world ................................................................................
Total revenues .................................................................................... $
65,179 $
13,477
16,421
9,444
104,521 $
64,766 $
15,755
18,051
10,092
108,664 $
63,727
8,240
24,754
11,942
108,663
Long-lived assets by geographic area consist of the following:
December 31,
2016
2015
(in thousands)
United States ................................................................................................................... $
Germany ..........................................................................................................................
United Kingdom ..............................................................................................................
Rest of the world .............................................................................................................
Total long-lived assets (1) ............................................................................................... $
12,004 $
5,504
918
3,341
21,767 $
13,610
7,817
1,440
3,907
26,774
(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:
December 31,
2016
2015
(in thousands)
United States ................................................................................................................... $
Germany ..........................................................................................................................
United Kingdom ..............................................................................................................
Rest of the world .............................................................................................................
Total net assets ................................................................................................................ $
25,736 $
15,026
16,083
15,351
72,196 $
22,312
18,512
17,908
18,866
77,598
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, 2014 ................. $
Year ended December 31, 2015 ................. $
Year ended December 31, 2016 ................. $
358
328
310
(67)
(4)
309
56
4
11
(19) $
(18) $
(19) $
328
310
611
(1) Consists of accounts written off, net of recoveries.
(2) Consists of the effect of currency translation.
F-35
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, 2014 ........................................... $
305
(102)
49 $
Year ended December 31, 2015 ........................................... $
252
(81)
(24) $
Year ended December 31, 2016 ........................................... $
147
(97)
143 $
252
147
193
24. Quarterly Financial Information (unaudited)
Statement of Operations Data:
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
(in thousands, except per share data)
Revenues .................................................... $
Cost of revenues .........................................
Gross profit .............................................
Total operating expenses ............................
Operating loss .............................................
Other (expense) income, net .......................
Loss before income taxes ...........................
Income tax expense (benefit) .....................
Net loss ....................................................... $
26,963 $
14,018
12,945
13,166
(221)
(222)
(443)
193
(636) $
26,136 $
14,461
11,675
12,515
(840)
73
(767)
(54)
(713) $
25,007 $
13,317
11,690
12,503
(813)
(67)
(880)
758
(1,638) $
26,415 $
14,310
12,105
13,228
(1,123 )
135
(988 )
332
(1,320 ) $
104,521
56,106
48,415
51,412
(2,997)
(81)
(3,078)
1,229
(4,307)
Loss per share:
Basic loss per common share ................. $
(0.02) $
(0.02) $
(0.05) $
(0.04 ) $
(0.13)
Diluted loss per common share .............. $
(0.02) $
(0.02) $
(0.05) $
(0.04 ) $
(0.13)
F-36
Statement of Operations Data:
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
(in thousands, except per share data)
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) $
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)
(Loss) earnings per share:
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-37
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: March 16, 2017
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) March 16, 2017
/s/ ROBERT E. GAGNON
Robert E. Gagnon
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 16, 2017
/s/ DAVID GREEN
David Green
/s/ JAMES GREEN
James Green
Director
Director
/s/ JOHN F. KENNEDY
John F. Kennedy
Director
/s/ EARL R. LEWIS
Earl R. Lewis
Director
/s/ BERTRAND LOY
Bertrand Loy
Director
/s/ GEORGE UVEGES
George Uveges
Director
March 16, 2017
March 16, 2017
March 16, 2017
March 16, 2017
March 16, 2017
March 16, 2017
EXHIBIT INDEX
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
Number
2.1
Description
Method of Filing
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 §
2.2
2.3
2.4
2.5
Share Purchase Agreement between Biochrom
Limited, as Buyer, and Multi Channel Systems
Holding GmbH, as Seller, dated as of October 1,
2014
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 Annual
Report on Form 10-K (filed March 27, 2015) and
incorporated by reference thereto
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
3.1
3.2
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
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
Previously filed as an exhibit to the Company’s
Registration Statement on Form 8-A (filed February 8,
2008) and incorporated by reference thereto
4.1
Specimen certificate for shares of Common Stock,
$0.01 par value, of Harvard Bioscience, Inc.
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
Shareholders Rights Agreement, dated as of
February 5, 2008 between Harvard Bioscience,
Inc., and Registrar and Transfer Company, as
Rights Agent
10.1
Harvard Apparatus, Inc. 1996 Stock Option and
Grant Plan
10.2
Harvard Bioscience, Inc. Third Amended and
Restated 2000 Stock Option and Incentive Plan
10.3
Harvard Bioscience, Inc. Employee Stock
Purchase Plan
10.4
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 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 October 25, 2000) and incorporated by
reference thereto
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 October 25, 2000) and incorporated by
reference thereto
Previously disclosed in the Company’s Proxy Statement
on Schedule 14A (filed April 15, 2011) 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 October 25, 2000) and incorporated by
reference thereto
10.5
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
10.6
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
10.7 + 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
10.8
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
10.9
Form of Incentive 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
10.10
Form of Non-Qualified Stock Option Agreement
(Executive Officers).
10.11
Form of Non-Qualified Stock Option Agreement
(Non-Employee Directors).
10.12 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 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
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed August 13, 2009) and
incorporated by reference thereto
10.13 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
10.14
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
10.15 Director Compensation Arrangements
Filed with this report
10.16 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
10.17
10.18
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
10.19 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
10.20
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
10.21 # 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
10.22 # 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
10.23 # 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
10.24
10.25
10.26
10.27
10.28
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.
Tax Sharing Agreement between Harvard
Bioscience, Inc. and Biostage, Inc. (f/k/a Harvard
Apparatus Regenerative Technology, Inc.) dated
as of October 31, 2013.
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
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed November 6, 2013) and
incorporated by reference thereto
10.29 # 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
10.30 # 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
10.31 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
10.32 # 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
10.33
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.
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed August 6, 2015) and
incorporated by reference thereto
10.34
10.35
10.36
10.37
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.
Form of Deferred Stock Award Agreement under
the Harvard Bioscience, Inc. Third Amended and
Restated 2000 Stock Option And Incentive Plan,
as amended
Fifth Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as
of November 5, 2015, by and among Harvard
Bioscience, Inc. Bank of America, N.A. and
Brown Brothers Harriman & Co.
Sixth Amendment to Second Amended and
Restated Credit Agreement dated as of March 9,
2016, 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 November 5, 2015) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Annual
Report on Form 10-K (filed April 29, 2016) and
incorporated by reference thereto
Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q (filed May 16, 2016) and
incorporated by reference thereto
10.38
Limited Consent and Waiver dated as of May 5,
2016 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 4, 2016) and
incorporated by reference thereto
10.39 # Third Amendment to Employment Agreement,
dated as of May 26, 2017, between Harvard
Bioscience, Inc. and Jeffrey A. Duchemin
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed May 27, 2016) and
incorporated by reference thereto
10.40 # Second Amendment to Employment Agreement,
dated as of May 26, 2017, between Harvard
Bioscience, Inc. and Robert E. Gagnon
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed May 27, 2016) and
incorporated by reference thereto
10.41 # Employment Agreement, dated as of May 26,
2017, between Harvard Bioscience, Inc. and Yong
Sun
Previously filed as an exhibit to the Company’s Current
Report on Form 8-K (filed May 27, 2016) and
incorporated by reference thereto
10.42
Limited Consent and Waiver dated as of
November 1, 2016, and effective as of
October 26, 2016 by and among Harvard
Bioscience, Inc., Bank of America, N.A and
Brown Brothers Harriman & Co.
Filed with this report
21.1
Subsidiaries of the Registrant
Filed with this report
23.1
Consent of KPMG LLP
Filed with this report
31.1
31.2
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
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
Filed with this report
32.1
32.2
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
Filed with this report
Linkbase 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
Filed with this report
Linkbase 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 10.15
Compensation of Non-Employee Directors Upon Initial Election to the Board
Director Compensation Arrangements
Each non-employee director will be entitled to receive a non-qualified stock option having an aggregate Black-
Scholes cash value of $120,000, rounded to the nearest 100 shares, provided that in no case shall such stock option be less
than 25,000 shares (so long as 25,000 shares are required to be granted under the equity incentive plan of the Corporation).
Such option shall be for the purchase of common stock of the Corporation and shall vest annually over three years and be
granted on the fifth business day following his or her initial election to the Board.
Annual Compensation of Non-Employee Directors
The annual retainers described herein shall each be satisfied by the issuance of deferred stock awards of restricted
stock units (each a “Retainer Award”) in accordance herewith. Each non-employee director will be entitled to receive an
annual retainer valued at $31,500. The Chairman will also be entitled to receive an additional annual retainer valued at
$31,500. Each non-employee director member of the Audit Committee will be entitled to receive an additional annual retainer
valued at $8,100. Each non-employee director member of the Compensation Committee will be entitled to receive an
additional annual retainer valued at $5,400. Each non-employee member of the Governance Committee will be entitled to
receive an additional annual retainer valued at $4,500. The Committee Chairman of the Audit Committee will be entitled to
receive an additional annual retainer valued at $16,200. The Committee Chairman of the Compensation Committee will be
entitled to receive an additional annual retainer valued at $10,800. The Committee Chairman of the Governance Committee
will be entitled to receive an additional annual retainer valued at $4,500. The Retainer Awards for individuals that are non-
employee directors of the Corporation as of the first trading day of January of the corresponding year, are granted on the first
trading day of January (the “Grant Date”) and vest quarterly over the calendar year (on each March 31, June 30, September
30 and December 31) and subject to continued service as a non-employee director on the applicable vesting dates. The number
of shares of common stock subject to a Retainer Award is equal to the amount of cash that would have been received had the
retainers all been paid in cash, divided by the average daily closing market price of the common stock for the month of
November, rounded to the nearest 100 shares.
In the event that a non-employee director is named Chairman or joins any committees of the Board of Directors
during a fiscal year after the Grant Date, such director shall be granted a Retainer Award (the “Additional Retainer Award”),
in relation to such additional roles and respective retainer amounts pro-rated for the remainder of such year, on the first trading
day of the month after the individual is appointed to such roles. The Additional Retainer Award shall vest in equal amounts
spread over the remaining quarterly vesting dates of the Retainer Awards for such calendar year subject to continued service
as a non-employee director on the applicable vesting dates (i.e. if the Additional Retainer Award is granted on September 1,
one half would vest on September 30 and the remaining half would vest on December 31). The number of shares of common
stock subject to an Additional Retainer Award is equal to the amount of cash that would have been received had the retainers
all been paid in cash, divided by the average daily closing market price of the common stock for the calendar month that is
two months prior to the month the director was appointed to the additional roles, rounded to the nearest 100 shares (i.e., the
month of June if the director was appointed to the additional roles on August 15).
Each non-employee director will also be entitled to receive an equity award having an aggregate cash value of
$72,000, rounded to the nearest 100 shares, vesting fully on the earlier to occur of (i) the date of the Corporation’s next
Annual Meeting of Stockholders after the grant date, immediately prior to the commencement of such meeting, and (ii) one
year from the date of grant and granted on the fifth business day following the Corporation’s Annual Meeting of Stockholders,
with such award to be evidenced by a grant of deferred stock awards of restricted stock units. In addition, non-employee
directors shall be reimbursed for their expenses incurred in connection with attending Board and Committee meetings.
Exhibit 21.1
Subsidiaries of the Registrant
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 (the Company) of our reports dated March 16, 2017, with respect to the consolidated balance
sheets of Harvard Bioscience, Inc. as of December 31, 2016 and 2015, 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, 2016, and the effectiveness of internal control over financial reporting as of December 31, 2016, which reports
appear in the December 31, 2016 annual report on Form 10-K of Harvard Bioscience, Inc.
Our report dated March 16, 2017, on the effectiveness of internal control over financial reporting as of December 31, 2016,
expresses our opinion that the Company did not maintain effective internal control over financial reporting as of December
31, 2016 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains
an explanatory paragraph that states that material weaknesses related to sufficient resources within the organization with
assigned accountability over the design and operation of inventory controls at Multi Channel Systems MCS GmbH (MCS),
an operating subsidiary, and over the design and operation of income tax controls, ineffective process level control activities
over the accuracy of data and assumptions used in the measurement of inventory costs and inventory reserves at MCS, and
the recognition, measurement, and disclosure of current and deferred income taxes have been identified and included in
management’s assessment.
Cambridge, Massachusetts
March 16, 2017
/s/ KPMG LLP
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: March 16, 2017
/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: March 16, 2017
/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, 2016 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: March 16, 2017
/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, 2016 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: March 16, 2017
/s/ JEFFREY A. DUCHEMIN
Name: Jeffrey A. Duchemin
Title: Chief Executive Officer
Exhibit 1
Harvard Bioscience, Inc.
Reconciliation of US GAAP Income (Loss) from Continuing Operations to Non-GAAP Adjusted Income
from Continuing Operations (Unaudited)
For the Year Ended December 31,
2012
2013
2014
2015
2016
US GAAP income (loss) from continuing operations........................ $ 4,494 $
723 $ 2,355 $ (19,039 ) $ (4,307 )
Adjustments:
Amortization of intangible assets ...............................................
2,752
2,590
2,578
2,819
2,722
Inventory valuation step-up charges on acquisition ...................
Inventory write-down .................................................................
Forensic investigation costs .......................................................
Impairment charges ...................................................................
Loss on sale of AHN ..................................................................
–
74
–
–
–
–
–
–
–
–
263
799
–
–
–
–
–
–
–
–
Acquisition costs ........................................................................
308
5
1,144
1,187
Biostage transaction costs .........................................................
696 2,048
–
–
Restructuring and severance related expenses .........................
310
2,150
1,647
1,849
–
–
1,663
676
1,190
54
–
38
Stock-based compensation expense .........................................
3,257
2,599
2,156
2,755
3,497
Income taxes ..............................................................................
(1,671 )
(3,053 )
(1,250 ) 14,035
(553 )
Non-GAAP adjusted income from continuing operations ................ $ 10,220 $ 7,062 $ 8,893 $ 4,405 $ 4,980
Exhibit 2
Harvard 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,
2012
2013
2014
2015
2016
US GAAP earnings (loss) per diluted share from continuing operations ... $ 0.15 $ 0.02 $ 0.07 $
(0.57 ) $
(0.13 )
Adjustments:
Amortization of intangible assets ...............................................
0.09
0.08
0.08
0.08
0.08
Inventory valuation step-up charges on acquisition ...................
Inventory write-down .................................................................
Forensic investigation costs .......................................................
Impairment charges ...................................................................
Loss on sale of AHN ..................................................................
–
–
–
–
–
–
0.01
0.02
–
–
–
–
–
–
–
–
–
–
–
–
Acquisition costs ........................................................................
0.01
–
0.03
0.04
Biostage transaction costs .........................................................
0.02
0.06
–
–
Restructuring and severance related expenses .........................
0.01
0.07
0.05
0.06
–
–
0.05
0.02
0.03
–
–
–
Stock-based compensation expense .........................................
0.11
0.08
0.06
0.08
0.11
Income taxes ..............................................................................
(0.05 )
(0.09 )
(0.03 )
0.42
(0.01 )
Non-GAAP adjusted earnings per diluted share from
continuing operations ..................................................................... $ 0.34 $ 0.22 $ 0.27 $ 0.13 $ 0.15
Forward-Looking Statements
This 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 2016 Annual
Report on Form 10-K or in our other public filings.
84 October Hill Road
Holliston, Massachusetts 01746
phone 508.893.8066
www.harvardbioscience.com