Notes to the Consolidated Financial Statements
(Unaudited)
(in
thousands, except per share amounts, unless otherwise indicated)
We develop, manufacture, market and sell diagnostic products and specimen collection
devices using our proprietary technologies, as well as other diagnostic products, including immunoassays and other
in vitro
diagnostic tests that are used on other specimen types. Our diagnostic products include tests that are performed on a
rapid basis at the point-of-care, tests that are processed in a laboratory, and a rapid point-of-care HIV test approved for use in the domestic consumer retail or over-the-counter (OTC) market. We also manufacture and sell
collection devices used to collect, stabilize, transport and store samples of genetic material for molecular testing in the consumer genetic, clinical genetic, academic research, pharmacogenomic, personalized medicine, microbiome and animal genetic
markets. Lastly, we manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. Our products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics,
community-based organizations, public health organizations, research and academic institutions, distributors, government agencies, physicians offices, commercial and industrial entities, retail pharmacies and mass merchandisers, and to
consumers over the internet.
2.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation and Basis of
Presentation
.
The consolidated financial statements include the accounts of OraSure Technologies, Inc. (OraSure) and its wholly-owned subsidiary, DNA Genotek, Inc. (DNAG). All intercompany
transactions and balances have been eliminated. References herein to we, us, our, or the Company mean OraSure and its consolidated subsidiary, unless otherwise indicated.
The accompanying consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of our financial position and results of operations for these interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results of operations expected for the full
year.
Use of Estimates
.
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and underlying assumptions affect the amounts of assets and liabilities reported, disclosures about
contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable and inventories and assumptions utilized in impairment testing for intangible assets and goodwill, as
well as calculations related to contingencies and accruals, among others. These estimates and assumptions are based on managements best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis, using
historical experience and other factors, which management believes to be reasonable under the circumstances, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances
dictate. Illiquid credit markets, volatile equity and foreign currency markets, reductions in government funding, and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As
future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment and other factors will
be reflected in the financial statements in those future periods.
Short-Term Investments
.
We consider all short-term investments to
be available-for-sale securities. These securities are comprised of guaranteed investment certificates with purchased maturities greater than ninety days. Available-for-sale securities are carried at fair value, based upon quoted market
prices, with unrealized gains and losses, if any, reported in stockholders equity as a component of accumulated other comprehensive income (loss).
-7-
Our available-for-sale securities as of June 30, 2016 and December 31, 2015 consisted of guaranteed investment
certificates with amortized cost and fair value of $7,736 and $7,225, respectively.
Fair Value of Financial Instruments
.
As of June
30, 2016 and December 31, 2015, the carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values based on their short-term nature.
Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and
disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs
which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Included in cash and cash equivalents at June 30, 2016 and December 31, 2015, was $84,229 and $65,509 invested in money market funds. These funds are
Level 1 instruments.
We offer a nonqualified deferred compensation plan for certain eligible employees and members of our Board of Directors. The
assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those
deferred amounts. The assets of the plan are held in mutual funds and Company stock. The fair value of the plan assets as of June 30, 2016 and December 31, 2015 was $1,589 and $1,324, respectively, and was calculated using the quoted
market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in other assets with the same amount included in
other liabilities in the accompanying consolidated balance sheets.
All of our available-for-sale securities are measured as Level 1 instruments as of
June 30, 2016 and December 31, 2015.
Inventories
.
Inventories are stated at the lower of cost or market determined on a
first-in, first-out basis and are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Raw materials
|
|
$
|
6,085
|
|
|
$
|
7,895
|
|
Work in process
|
|
|
497
|
|
|
|
333
|
|
Finished goods
|
|
|
4,784
|
|
|
|
5,014
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,366
|
|
|
$
|
13,242
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
.
Property and equipment are stated at cost. Additions or
improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated
over twenty to forty years, while computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold,
retired, or discarded, the related property amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statements of income. Accumulated depreciation of property and equipment as of June 30, 2016 and December
31, 2015 was $34,479 and $33,013, respectively.
-8-
Intangible Assets
. Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Amortization
Period (Years)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer list
|
|
|
10
|
|
|
$
|
9,692
|
|
|
$
|
(4,552
|
)
|
|
$
|
5,140
|
|
Patents and product rights
|
|
|
10
|
|
|
|
5,400
|
|
|
|
(3,583
|
)
|
|
|
1,817
|
|
Acquired technology
|
|
|
7
|
|
|
|
7,528
|
|
|
|
(4,974
|
)
|
|
|
2,554
|
|
Tradename
|
|
|
15
|
|
|
|
3,715
|
|
|
|
(1,206
|
)
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,335
|
|
|
$
|
(14,315
|
)
|
|
$
|
12,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortization
Period (Years)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer list
|
|
|
10
|
|
|
$
|
9,051
|
|
|
$
|
(3,818
|
)
|
|
$
|
5,233
|
|
Patents and product rights
|
|
|
10
|
|
|
|
5,400
|
|
|
|
(3,358
|
)
|
|
|
2,042
|
|
Acquired technology
|
|
|
7
|
|
|
|
7,030
|
|
|
|
(4,172
|
)
|
|
|
2,858
|
|
Tradename
|
|
|
15
|
|
|
|
3,469
|
|
|
|
(1,011
|
)
|
|
|
2,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,950
|
|
|
$
|
(12,359
|
)
|
|
$
|
12,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
.
Goodwill represents the excess of the purchase price we paid over the fair
value of the net tangible and identifiable intangible assets acquired and liabilities assumed in our acquisition of DNAG in August 2011. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe
that indicators of impairment exist. Current U.S. generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the fair
value of a reporting unit is greater than its carrying amount, then we would not be required to perform the two-step quantitative impairment test. Otherwise, performing the two-step impairment test is necessary. The first step of the two-step
quantitative impairment test involves comparing the fair values of the applicable reporting unit with its aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting units fair value, we
perform the second step of the test to determine the amount of the impairment loss, if any. The second step involves measuring any impairment by comparing the implied fair values of the affected reporting units goodwill and intangible
assets with the respective carrying values.
We performed our last annual impairment assessment as of July 31, 2015 utilizing a qualitative evaluation and
concluded that it was more likely than not that the fair value of our DNAG reporting unit is greater than its carrying value. We believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting
unit. If actual future results are not consistent with managements estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will continue to be performed
annually in the fiscal third quarter, or sooner if a triggering event occurs. As of June 30, 2016, we believe no indicators of impairment exist.
The change in goodwill from $18,250 as of December 31, 2015 to $19,541 as of June 30, 2016 is a result of foreign currency translation.
Revenue Recognition
.
We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed
or determinable, title has passed and collection is reasonably assured. Product revenues are
-9-
recorded net of allowances for any discounts or rebates. Other than for sales of our OraQuick
®
In-Home HIV test to the retail trade,
we do not grant price protection or product return rights to our customers except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred.
Our net revenues recorded on sales of the OraQuick
®
In-Home HIV test represent total gross revenues,
less an allowance for expected returns, and customer allowances for cooperative advertising, discounts, rebates, and chargebacks. The allowance for expected returns is an estimate established by management, based upon currently available
information, and is adjusted to reflect known changes in the factors that impact this estimate. Other customer allowances for cooperative advertising, discounts, rebates, and chargebacks are contractual in nature. These allowances are
recorded as a reduction of gross revenue when recognized in our consolidated statements of income.
We record shipping and handling charges billed to our
customers as product revenue and the related expense as cost of products sold. Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues.
On June 10, 2014, we entered into a Master Program Services and Co-Promotion Agreement with AbbVie Bahamas Ltd., a wholly-owned subsidiary of AbbVie Inc.
(AbbVie), to co-promote our OraQuick
®
HCV test in the United States.
Pursuant to the
agreement, we granted exclusive co-promotion rights for the OraQuick
®
HCV test in certain markets to AbbVie and we agreed to develop, implement, administer and maintain a patient care database
for the exclusive use of AbbVie. This patient care database is being used to compile patient information regarding new individuals who have tested positive for HCV using our OraQuick
®
HCV
test. We also jointly agreed with AbbVie to co-promote our OraQuick
®
HCV test in certain market segments.
Under the terms of this agreement, we are eligible to receive up to $75,000 in aggregate payments. We are recognizing this revenue ratably on a monthly
basis over the term of the agreement which was to terminate on December 31, 2019. During the second quarter and first six months of 2016, $3,360 and $6,722, respectively, in exclusivity revenue was recognized and was recorded as other revenue
in our consolidated statements of income.
Effective June 30, 2016, we mutually agreed to an early termination of this agreement with AbbVie and it will
now end on December 31, 2016. Following the termination of the agreement, AbbVie will be relieved of its co-promotion obligations, including its obligation to detail the OraQuick
®
HCV Rapid Test into physician offices, and will have no further financial obligations to us. We will no longer be obligated to compensate AbbVie for product detailing activities and will be free to pursue arrangements with other pharmaceutical
companies to market and promote our OraQuick
®
HCV Rapid Antibody Test in the U.S. As a result of the shortened term, the remaining associated deferred revenue of $12.2 million at June 30,
2016, will be recognized ratably as other revenue over the remaining six months of 2016 as there are no substantive on-going obligations remaining beyond December 31, 2016.
On June 12, 2015, we were awarded a grant for up to $10,400 in total funding from the U.S. Department of Health and Human Services (HHS) Office of
the Assistant Secretary for Preparedness and Responses Biomedical Advanced Research and Development Authority (BARDA) related to the development of our OraQuick
®
Ebola Rapid
Antigen test. The three-year, multi-phased grant includes an initial commitment of $1,800 and options for up to an additional $8,600 to fund certain clinical and regulatory activities. In September 2015, BARDA exercised an option to
provide $7,200 in additional funding for the development of our OraQuick
®
Ebola Rapid Antigen test. Amounts related to this grant are recorded as other revenue in our consolidated
statements of income as the activities are being performed and the related costs are incurred. During the second quarter and first six months of 2016, $417 and $899, respectively, was recognized in connection with this grant.
Customer Sales Returns and Allowances
.
We do not grant return rights to our customers for any product, except for our OraQuick
®
In-Home HIV test. Accordingly, we have recorded an estimate of expected returns as a reduction of gross OraQuick
®
In-Home HIV product
revenues in our consolidated statements of income. This estimate reflects our historical sales experience to retailers and consumers, as well as other retail factors, and is reviewed regularly to ensure that it reflects potential product
returns. As of June 30, 2016 and December 31, 2015, the reserve for sales returns and allowances was $328 and $310, respectively. If actual product returns differ materially from our reserve
-10-
amount, or if a determination is made that this products distribution would be discontinued in whole or in part by certain retailers, then we would need to adjust our reserve. Should
the actual level of product returns vary significantly from our estimates, our operating and financial results could be materially affected.
Deferred Revenue
.
We record deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred
revenue as of June 30, 2016 and December 31, 2015 includes customer prepayments of $1,593 and $784, respectively. Deferred revenue as of June 30, 2016 and December 31, 2015 also includes $12,229 and $8,951, respectively, from AbbVie, which
represents the excess of the payments received from AbbVie over the amounts earned and recognized ratably in our consolidated statements of income.
Customer and Vendor Concentrations
.
One of our customers accounted for approximately 13% of our accounts receivable as of
June 30, 2016. We had no significant concentrations in accounts receivable as of December 31, 2015. Another customer accounted for approximately 11% of our net revenues for the three and six months ended June 30, 2016,
respectively. The same customer accounted for approximately 11% and 12% of our net revenues for the three and six months ended June 30, 2015, respectively.
We currently purchase certain products and critical components of our products from sole-supply vendors. If these vendors are unable or unwilling to
supply the required components and products, we could be subject to increased costs and substantial delays in the delivery of our products to our customers. Also, our subsidiary, DNAG, uses two third-party suppliers to manufacture its products. Our
inability to have a timely supply of any of these components and products could have a material adverse effect on our business, as well as our financial condition and results of operations.
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 period. Diluted earnings per share is computed in a manner similar to basic earnings per share except that the weighted average number of shares outstanding is increased to include incremental shares from the
assumed vesting or exercise of dilutive securities, such as common stock options and unvested restricted stock, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were
exercised and unvested restricted shares were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period.
The computations of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
3,836
|
|
|
$
|
1,968
|
|
|
$
|
6,282
|
|
|
$
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,543
|
|
|
|
56,453
|
|
|
|
55,497
|
|
|
|
56,398
|
|
Dilutive effect of stock options and restricted stock
|
|
|
665
|
|
|
|
234
|
|
|
|
647
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
56,208
|
|
|
|
56,687
|
|
|
|
56,144
|
|
|
|
56,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended June 30, 2016 and 2015, outstanding common stock options and unvested restricted stock
representing 2,459 and 5,010 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. For the six months ended June 30, 2016 and 2015, outstanding common stock
options and unvested restricted stock representing 3,191 and 3,856 shares, respectively, were similarly excluded from the computation of diluted earnings per share.
-11-
Foreign Currency Translation
. The assets and liabilities of our foreign operations are
translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other
comprehensive loss, which is a separate component of stockholders equity.
Transaction gains and losses resulting from exchange rate changes on
transactions denominated in currencies other than functional currency are included in our consolidated statements of income in the period in which the change occurs. Net foreign exchange gains (losses) resulting from foreign currency
transactions that are included in other income (expense) in our consolidated statements of income were $(302) and $(47) for the three months ended June 30, 2016 and 2015, respectively. Net foreign exchange gains (losses) were $(648) and $541
for the six months ended June 30, 2016 and 2015, respectively.
Accumulated Other Comprehensive Income (Loss)
.
We classify items
of other comprehensive income (loss) by their nature and disclose the accumulated balance of other comprehensive income (loss) separately from accumulated deficit and additional paid-in capital in the stockholders equity section of our balance
sheet.
We have defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and as such, the results of its operations are
translated into U.S. dollars, which is the reporting currency of the Company. The $3,230 and $(3,178) currency translation adjustments recorded in the first six months of 2016 and 2015, respectively, are largely the result of the translation of
our Canadian operations balance sheets into U.S. dollars.
Recent Accounting Pronouncements
.
In May 2014, the
Financial Accounting Standards Board (FASB) issued converged guidance on recognizing revenue in contracts with customers, ASU 2014-09
Revenue from Contracts with Customers
. The intent of the new standard is to improve
financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration
which the company expects to receive in exchange for those goods or services. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, with early adoption
permitted. We are still evaluating the effects, if any, which adoption of this guidance will have on our consolidated financial statements.
In July
2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
, which requires an entity that uses the first-in, first-out method for inventory measurement to report inventory cost at the lower of cost and net realizable value
versus the current measurement principle of lower of cost or market. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. Early adoption is permitted. We are evaluating
the effect that ASU 2015-11 may have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires entities to begin recording assets and liabilities from leases on the balance sheet. The new guidance will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from
leases. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018, using a modified retrospective approach. Early adoption is permitted. We are evaluating the effect
that ASU 2016-02 may have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued authoritative guidance under
ASU 2016-09,
Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting
. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including
income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company is required to adopt this new authoritative guidance in the first quarter of fiscal 2018. Early adoption
is permitted. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
-12-
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Payroll and related benefits
|
|
$
|
4,172
|
|
|
$
|
6,311
|
|
Professional Fees
|
|
|
1,177
|
|
|
|
1,014
|
|
Royalties
|
|
|
830
|
|
|
|
819
|
|
Other
|
|
|
2,114
|
|
|
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,293
|
|
|
$
|
10,412
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Awards
We grant stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended and restated (the Stock Plan). The Stock Plan
permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may be granted under the Stock Plan include qualified incentive stock options, nonqualified stock options, stock appreciation
rights, restricted awards, performance awards and other stock-based awards. We recognize compensation expense for stock option and restricted stock awards issued to employees and directors on a straight-line basis over the requisite service
period of the award. To satisfy the exercise of options or vesting of restricted stock and performance awards, we issue new shares rather than purchase shares on the open market.
Commencing in 2016, we have granted to certain executives performance-based restricted stock units (PSUs). Vesting of these PSUs is dependent
upon achievement of a performance-based metric during a one-year or three-year period, from the date of grant. Assuming achievement of each performance-based metric, the executive must also remain in our service for three years, commencing with the
grant date. Performance during the one-year period will be based on a one-year earnings per share target. Upon achievement of the one-year target, the PSUs will then vest three years from grant date. Performance during the three-year period will be
based on achievement of a three-year compound annual growth rate for consolidated product revenues. Upon achievement of the three-year target, the corresponding PSUs will vest in full. PSUs are converted into shares of our common stock once vested.
Upon grant of the PSUs, the Company recognizes compensation expense related to these awards based on assumptions as to what percentage of each target will be achieved. The Company evaluates these target assumptions on a quarterly basis and adjusts
compensation expense related to these awards, as appropriate.
Total compensation cost related to stock options for the six months ended June 30, 2016 and
2015 was $1,387 and $1,690, respectively. Net cash proceeds from the exercise of stock options were $209 and $124 for the six months ended June 30, 2016 and 2015, respectively. As a result of the Companys net operating loss
carryforward position, no actual income tax benefit was realized from stock option exercises during these periods.
Compensation cost of $1,401 and $1,318
related to restricted shares was recognized during the six months ended June 30, 2016 and 2015, respectively. In connection with the vesting of restricted shares and exercise of stock options during the six months ended June 30, 2016 and
2015, we purchased and immediately retired 117 and 132 shares with aggregate values of $651 and $883, respectively, in satisfaction of minimum tax withholding and exercise obligations.
Compensation cost of $154 related to the PSUs was recognized during the six months ended June 30, 2016.
Stock Repurchase Program
On August 5, 2008, our Board of
Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25,000 of our outstanding common shares. During the six months ended June 30, 2016, we purchased and retired 423 shares of common stock at an average
price of $6.29 per share for a total cost of $2,660. No shares were purchased and retired during the six months ended June 30, 2015, under this share repurchase program.
-13-
During the three and six months ended June 30, 2016, we recorded tax expense of $173 and
$234, respectively. During the three and six months ended June 30, 2015, we recorded tax expense of $658 and $663, respectively.
The following table
summarizes the components of income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Current taxes
|
|
$
|
199
|
|
|
$
|
292
|
|
|
$
|
278
|
|
|
$
|
297
|
|
Deferred taxes
|
|
|
(26
|
)
|
|
|
366
|
|
|
|
(44
|
)
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
173
|
|
|
$
|
658
|
|
|
$
|
234
|
|
|
$
|
663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes reflect taxes due to state and provincial taxing authorities. Deferred income taxes reflect the tax effects
of temporary differences between the basis of assets and liabilities recognized for financial reporting and tax purposes, and net operating loss and tax credit carryforwards. The significant components of our total deferred tax liability as of June
30, 2016 relate to the tax effects of the basis differences between the intangible assets acquired in the DNAG acquisition for financial reporting and tax purposes.
In 2008, we established a full valuation allowance against our U.S. deferred tax asset. Management believes the full valuation allowance is still
appropriate as of both June 30, 2016 and December 31, 2015 since the facts and circumstances necessitating the allowance have not changed. As a result, no U.S. federal or state deferred income tax expense or benefit was recorded for the three
and six-month periods ended June 30, 2016 and 2015.
6.
|
Commitments and Contingencies
|
From time to time, we are involved in certain legal actions arising in
the ordinary course of business. In managements opinion, based upon the advice of counsel, the outcomes of such actions are not expected, individually or in the aggregate, to have a material adverse effect on our future financial position
or results of operations.
7.
|
Business Segment Information
|
We operate our business within two reportable segments: our
OSUR business, which consists of the development, manufacture and sale of diagnostic products, specimen collection devices and medical devices; and our molecular collection systems or DNAG business, which primarily consists
of the manufacture, development and sale of oral fluid collection devices that are used to collect, stabilize and store samples of genetic material for molecular testing. OSUR revenues are derived primarily from products sold in the United States
and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, public health organizations, distributors, government agencies, physicians offices, commercial and industrial entities, retail pharmacies,
mass merchandisers, and to consumers over the internet. OSUR also derives other revenues, including exclusivity payments for co-promotion rights and other licensing and product development activities. DNAG revenues result primarily from
products sold into the commercial market which consists of customers engaged in consumer genetics, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetic testing, and microbiome testing. DNAG products
are also sold into the academic research market, which consists of research laboratories, universities and hospitals.
We organized our operating segments
according to the nature of the products included in those segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). We evaluate performance of our
operating segments based on revenue and operating income (loss). We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating segments. Reportable segments have no inter-segment
revenues and inter-segment expenses have been eliminated.
-14-
The following table summarizes operating segment information for the three and six months ended June 30, 2016 and
2015, and asset information as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
22,926
|
|
|
$
|
22,286
|
|
|
$
|
45,125
|
|
|
$
|
42,657
|
|
DNAG
|
|
|
8,433
|
|
|
|
8,102
|
|
|
|
15,323
|
|
|
|
14,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,359
|
|
|
$
|
30,388
|
|
|
$
|
60,448
|
|
|
$
|
57,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
2,919
|
|
|
$
|
685
|
|
|
$
|
4,526
|
|
|
$
|
(836
|
)
|
DNAG
|
|
|
1,430
|
|
|
|
2,036
|
|
|
|
2,522
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,349
|
|
|
$
|
2,721
|
|
|
$
|
7,048
|
|
|
$
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
661
|
|
|
$
|
734
|
|
|
$
|
1,315
|
|
|
$
|
1,460
|
|
DNAG
|
|
|
747
|
|
|
|
706
|
|
|
|
1,463
|
|
|
|
1,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,408
|
|
|
$
|
1,440
|
|
|
$
|
2,778
|
|
|
$
|
2,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
661
|
|
|
$
|
490
|
|
|
$
|
1,123
|
|
|
$
|
566
|
|
DNAG
|
|
|
460
|
|
|
|
218
|
|
|
|
1,606
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,121
|
|
|
$
|
708
|
|
|
$
|
2,729
|
|
|
$
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
143,772
|
|
|
$
|
137,082
|
|
|
DNAG
|
|
|
56,148
|
|
|
|
52,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
199,920
|
|
|
$
|
189,321
|
|
|
|
|
|
|
|
|
|
|
|
|
Our products are sold principally in the United States and Europe.
The following table represents total revenues by geographic area, based on the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
24,021
|
|
|
$
|
25,071
|
|
|
$
|
46,191
|
|
|
$
|
45,488
|
|
Europe
|
|
|
2,957
|
|
|
|
2,939
|
|
|
|
6,836
|
|
|
|
7,313
|
|
Other regions
|
|
|
4,381
|
|
|
|
2,378
|
|
|
|
7,421
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,359
|
|
|
$
|
30,388
|
|
|
$
|
60,448
|
|
|
$
|
57,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
The following table represents total long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
15,665
|
|
|
$
|
15,660
|
|
Canada
|
|
|
4,511
|
|
|
|
4,415
|
|
Other regions
|
|
|
24
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,200
|
|
|
$
|
20,083
|
|
|
|
|
|
|
|
|
|
|
-16-