Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Jun. 30, 2014 |
Accounting Policies [Abstract] | ' |
Company Description | ' |
Company Description |
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Cardiovascular Systems, Inc. (the "Company") was incorporated as Replidyne, Inc. ("Replidyne") in Delaware in 2000. On February 25, 2009, Replidyne completed its reverse merger with Cardiovascular Systems, Inc., a Minnesota corporation incorporated in 1989 (“CSI-MN”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of November 3, 2008 (the “Merger Agreement”). Pursuant to the Merger Agreement, CSI-MN continued after the merger as the surviving corporation and a wholly-owned subsidiary of Replidyne. At the effective time of the merger, Replidyne changed its name to Cardiovascular Systems, Inc. (“CSI”) and CSI-MN merged with and into CSI, with CSI continuing after the merger as the surviving corporation. These transactions are referred to herein as the “merger.” |
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The Company develops, manufactures and markets devices for the treatment of vascular diseases. The Company’s peripheral arterial disease products, the Stealth 360°® PAD System, the Diamondback 360® PAD System, and the Predator 360°® PAD System, are catheter-based platforms capable of treating a broad range of plaque types, including calcified plaque, in leg arteries both above and below the knee and address many of the limitations associated with existing treatment alternatives. In October 2013, the Company received premarket approval (“PMA”) from the FDA to market the Diamondback 360® Coronary Orbital Atherectomy System (“OAS”) as a treatment for severely calcified coronary arteries. The Company began a controlled commercial launch of the Diamondback 360® Coronary OAS following receipt of PMA approval. |
Principles of Consolidation | ' |
Principles of Consolidation |
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The consolidated balance sheets, statements of operations, changes in stockholders’ equity and comprehensive loss, and cash flows include the accounts of the Company and its wholly-owned subsidiary, after elimination of all intercompany transactions and accounts. |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents |
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The Company considers all money market funds and other investments purchased with an original maturity of three months or less to be cash and cash equivalents. |
Accounts Receivable and Allowance for Doubtful Accounts | ' |
Accounts Receivable and Allowance for Doubtful Accounts |
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Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required. The Company maintains an allowance for doubtful accounts. This allowance is an estimate and is regularly evaluated by the Company for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay. Provisions for the allowance for doubtful accounts attributed to bad debt are recorded in general and administrative expenses. The following table shows the allowance for doubtful accounts activity (in thousands): |
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| Amount |
Balances at June 30, 2012 | $ | 392 | |
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Provision for doubtful accounts | 195 | |
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Write-offs | (129 | ) |
Balances at June 30, 2013 | 458 | |
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Provision for doubtful accounts | 65 | |
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Write-offs | (72 | ) |
Balances at June 30, 2014 | $ | 451 | |
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Inventories | ' |
Inventories |
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Inventories are stated at the lower of cost or market with cost determined on a first-in, first-out (“FIFO”) method of valuation. The establishment of inventory allowances for excess and obsolete inventories is based on estimated exposure on specific inventory items. |
Property and Equipment | ' |
Property and Equipment |
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Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over estimated useful lives of five years for production equipment and furniture and fixtures; three years for computer equipment and software; and the shorter of their estimated useful lives or the lease term for leasehold improvements. Expenditures for maintenance and repairs and minor renewals and betterments which do not extend or improve the life of the respective assets are expensed as incurred. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation accounts are adjusted for property retirements and disposals with the resulting gains or losses included in the consolidated statement of operations. |
Patents | ' |
Patents |
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The capitalized costs incurred to obtain patents are amortized using the straight-line method over their remaining estimated lives. Patent amortization begins at the time of patent application approval, and does not exceed 20 years. The recoverability of capitalized patent costs is dependent upon the Company’s ability to derive revenue-producing products from such patents or the ultimate sale or licensing of such patent rights. Patents that are abandoned are written off at the time of abandonment. |
Long-Lived Assets | ' |
Long-Lived Assets |
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The Company regularly evaluates the carrying value of long-lived assets for events or changes in circumstances that indicate that the carrying amount may not be recoverable or that the remaining estimated useful life should be changed. An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its fair value. |
Operating Leases | ' |
Operating Leases |
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The Company leases manufacturing and office space under operating lease agreements. One lease contains rent escalation clauses for which the lease expense is recognized on a straight-line basis over the lease term. Rent expense that is recognized but not yet paid is included in other liabilities on the consolidated balance sheets. |
Revenue Recognition | ' |
Revenue Recognition |
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The Company sells the majority of its products via direct shipment to hospitals or clinics. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. The Company records estimated sales returns, discounts and rebates as a reduction of net sales. |
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Costs related to products delivered are recognized in the period the revenue is recognized. Cost of goods sold consists primarily of raw materials, direct labor, and manufacturing overhead. |
Warranty Costs | ' |
Warranty Costs |
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The Company provides its customers with the right to receive a replacement if a product is determined to be defective at the time of shipment. Warranty reserve provisions are estimated based on Company experience, volume, and expected warranty claims. Warranty reserve, provisions and claims were as follows (in thousands): |
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| Amount |
Balances at June 30, 2012 | $ | 103 | |
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Provision | 327 | |
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Claims | (314 | ) |
Balances at June 30, 2013 | 116 | |
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Provision | 308 | |
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Claims | (308 | ) |
Balances at June 30, 2014 | $ | 116 | |
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Income Taxes | ' |
Income Taxes |
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Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. |
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Developing a provision for income taxes, including the effective tax rate and the analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets. The Company’s judgment and tax strategies are subject to audit by various taxing authorities. |
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Accounting guidance requires that accounting for uncertainty in income taxes is recognized in the financial statements. The guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. The guidance also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. |
Research and Development Expenses | ' |
Research and Development Expenses |
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Research and development expenses include costs associated with the design, development, testing, enhancement and regulatory approval of the Company’s products. Research and development expenses include employee compensation (including stock-based compensation), supplies and materials, consulting expenses, patent amortization, travel and facilities overhead. The Company also incurs significant expenses to operate clinical trials, including trial design, third-party fees, clinical site reimbursement, data management and travel expenses. Research and development expenses are expensed as incurred. Approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives. Patent amortization begins at the time of patent application approval, and does not exceed 20 years. |
Concentration of Credit Risk | ' |
Concentration of Credit Risk |
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Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash balances primarily with one financial institution. These balances exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents. |
Fair Value of Financial Instruments | ' |
Fair Value of Financial Instruments |
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Under the authoritative guidance for fair value measurements, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels defined as follows: |
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Level 1 Inputs — quoted prices in active markets for identical assets and liabilities |
Level 2 Inputs — observable inputs other than quoted prices in active markets for identical assets and liabilities |
Level 3 Inputs — unobservable inputs |
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The following table sets forth the fair value of the Company’s financial instruments that were measured on a recurring basis (in thousands): |
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| Debt Conversion |
Option |
Balance at June 30, 2012 | $ | 484 | |
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Issuance of convertible notes | 413 | |
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Conversion of convertible notes | (551 | ) |
Change in conversion option valuation | 370 | |
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Balance at June 30, 2013 | 716 | |
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Conversion of convertible notes | (655 | ) |
Change in conversion option valuation | (61 | ) |
Balance at June 30, 2014 | $ | — | |
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The fair value of the debt conversion option is related to the loan and security agreement with Partners for Growth III. L.P. ("PFG") (described in Note 3) and is included as a component of debt conversion option and other assets on the balance sheet. The Monte Carlo option pricing model was used to determine the value of the debt conversion option and included various inputs such as expected volatility, stock price simulations, and assessed behavior of the Company and PFG based on those simulations. Based upon these inputs, the Company determined the conversion option to be a Level 3 investment. Significant increases (decreases) in any of these inputs in isolation would have resulted in a significantly higher (lower) fair value measurement. As of June 30, 2014, there was no balance for the debt conversion option asset as all of the associated convertible debt had been converted. |
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As of June 30, 2014, the Company believes that the carrying amounts of its other financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate their fair value due to the short-term maturities of these instruments. |
Use of Estimates | ' |
Use of Estimates |
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The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Stock-Based Compensation | ' |
Stock-Based Compensation |
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The Company has stock-based compensation plans, which includes stock options, nonvested share awards, and an employee stock purchase plan. Fair value of option awards is determined using option-pricing models, fair value of nonvested share awards with market conditions is determined using the Monte Carlo simulation, and fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of the Company's stock on the date of grant, as determined by management and the board of directors. Stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest. |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
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In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The amendments in ASU 2013-11 require companies to present an unrecognized tax benefit, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss ("NOL") carryforward or a similar tax loss or tax credit carryforward, unless the uncertain tax position is not available to reduce, or would not be used to reduce, the NOL or carryforward under the tax law in the same jurisdiction; otherwise, the unrecognized tax benefit should be presented as a gross liability and should not net the unrecognized tax benefit with a deferred tax asset. ASU 2013-11 is effective for annual periods beginning after December 15, 2013 and should be applied to all unrecognized tax benefits that exist as of the effective date. Companies may choose to apply this guidance retrospectively to each prior reporting period presented. The Company does not anticipate a material impact on its consolidated financial statements upon adoption. |
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In May 2014, the FASB issued ASU 2014-09, “Revenue From Customers With Contracts.” The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two prescribed retrospective methods. Early adoption is not permitted. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements. |
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In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award |
Provide That a Performance Target Could Be Achieved after the Requisite Service Period". The guidance requires that a |
performance target that affects vesting and that could be achieved after the requisite service period should be treated as a |
performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the |
award. ASU 2014-12 is effective for annual and interim periods within the annual period beginning after December 15, 2015. The Company does not currently have share-based payment awards that fall within the scope of this standard therefore does not anticipate an impact on our consolidated financial statements upon adoption. |