| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Revenue Recognition We recognize revenue from product sales and services when earned. Revenues are recognized when: (a) there is persuasive evidence of an arrangement, (b) the product has been shipped or services and supplies have been provided to the customer, (c) the sales price is fixed or determinable and (d) collection is reasonably assured. Certain agreements with distributors allow for product returns and credits. For shipment of product sold to distributors, revenue is recognized at the time of sale if a reasonable estimate of future returns or credit can be made. If a reasonable estimate of future returns or credit cannot be made, we recognize revenue using the "sell-through" method. Under the "sell-through" method, revenue and related costs of revenue is deferred until the final resale of such products to end customers. In addition to contractually determined volume discounts, in many agreements we offer rebates based on sales to specific end customers and discounts for early payment. Rebates and discounts are recorded as a reduction of sales and trade accounts receivable, based on our best estimate of the amount of probable future rebate or discount on current sales. We enter into multiple-element arrangements that may include a combination of equipment, related disposables and services. Revenue arrangements with multiple elements are divided into separate units of accounting if specified criteria are met, including whether the delivered element has stand-alone value to the customer, the consideration received is allocated among the separate units based on their respective selling price, and the applicable revenue recognition criteria are applied to each of the separate units. We determine selling price using vendor specific objective evidence ("VSOE"), if it exists, otherwise third-party evidence of selling price is used. If neither VSOE nor third-party evidence of selling price exists for a unit of accounting, we use best estimated selling price ("BESP"). We generally expect that we will not be able to establish third-party evidence due to the nature of our products and the markets in which we compete, and, as such, we typically will determine selling price using VSOE or BESP. We determine BESP for an individual element based on consideration of both market and Company-specific factors, including the selling price and profit margin for similar products, the cost to produce the deliverable and the anticipated margin on that deliverable and the characteristics of the varying markets in which the deliverable is sold. System One Segment We derive revenue in the home market from the sales of hemodialysis therapy to customers in which the customer either purchases or rents the System One and/or PureFlow SL hardware and purchases a specified number of disposable products and service. For customers that purchase the System One and PureFlow SL hardware, in the U.S. home market, due to the depot service model whereby equipment requiring service is picked up and a replacement device is shipped to the site of care, we recognize fees received from equipment sale as revenue on a straight-line basis over the expected term of our remaining service obligation and direct costs relating to the delivered equipment are deferred and amortized over the same expected period as the related revenue. Disposable products revenue is recognized on a monthly basis upon delivery. Under the rental arrangements, revenue is recognized on a monthly basis in accordance with agreed upon contract terms and pursuant to binding customer purchase orders and fixed payment terms. Our sales arrangements with our international distributors are structured as direct product sales and have no significant post delivery obligations with the exception of standard warranty obligations. Revenue from direct product sales is recognized upon delivery in accordance with contract terms. In the critical care market, we structure sales of the System One and disposable products as direct product sales and have no significant post delivery obligations with the exception of standard warranty obligations. Revenue from direct product sales is recognized upon delivery in accordance with contract terms. Certain of these arrangements provide for training, technical support and extended warranty services to our customers. We recognize training and technical support revenue when the related services are performed. In the case of extended warranty, the service revenue is recognized ratably over the extended warranty period. In-Center Segment Our In-Center segment sales are structured as direct product sales primarily through distributors, and we have no significant post delivery obligations with the exception of standard warranty obligations. Revenue from direct product sales is recognized upon delivery in accordance with contract terms. Some of our distribution contracts for the In-Center segment contain minimum volume commitments with negotiated pricing discounts at different volume tiers. Each agreement may be canceled upon a material breach, subject to certain curing rights, and in many instances minimum volume commitments can be reduced or eliminated upon certain events. Services Segment Revenues in our Services segment are derived from dialysis care services provided to patients at our recently opened NxStage Kidney Care dialysis centers. Revenues are recognized based on a customary fee schedule, net of estimated contractual allowances to reflect the estimated amounts to be received from the payor. Revenues are recognized in the period in which services are provided when we have the ability to reasonably estimate amounts ultimately collectible from the payor. In instances where we do not have the ability to reasonably estimate amounts ultimately collectible, as is often the case with non-contracted commercial health plans and amounts due from patients (including co-pay and deductible amounts), revenue is recognized in the period in which cash is received. Foreign Currency Translation and Transactions Assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates, and income and expense items are translated at average rates of exchange prevailing during the year. Foreign exchange gains and (losses) on intercompany loans considered permanent investments are recorded in other comprehensive loss. Gains and (losses) realized from transactions denominated in foreign currencies, including intercompany balances not considered permanent investments, are included in the consolidated statements of comprehensive loss within other income (expense), net. Cash and Cash Equivalents We consider all highly-liquid investments purchased with original maturities of 90 days or less to be cash equivalents. Cash equivalents include amounts invested in treasury obligation money market funds. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, derivatives and accounts receivable. To mitigate such risk, with respect to cash and cash equivalents, we place our cash in bank deposit accounts with financial institutions that have investment grade ratings and capital ratios exceeding minimum Federal Reserve Adequacy Guidelines and in treasury obligation money market funds. To mitigate concentration of credit risk with respect to derivatives we enter into transactions with highly-rated financial institutions and frequently monitor the credit worthiness of our counterparties. Concentration of credit risk with respect to accounts receivable is primarily limited to certain customers to whom we make substantial sales. One customer represented 12% of accounts receivable at December 31, 2015 and two customers represented 18% and 16% of accounts receivable at December 31, 2014 . To reduce risk, we routinely assess the financial strength of our customers and closely monitor their amounts due and, as a result of our assessment, we believe that our accounts receivable credit risk exposure is limited. Historically, we have not experienced any significant credit losses related to an individual customer or group of customers in any particular market or geographic area. We maintain an allowance for doubtful accounts based on an analysis of historical losses from uncollectible accounts, aging of unpaid accounts receivable balances and risks identified for specific customers who may not be able to make required payments. Provisions for the allowance for doubtful accounts are recorded in general and administrative expenses in the accompanying consolidated statements of comprehensive loss. Activity related to allowance for doubtful accounts consisted of the following (in thousands): Year Ended Balance at Beginning of Year Provision Write-offs Balance at End of Year December 31, 2015 $ 425 $ 20 $ (28 ) $ 417 December 31, 2014 $ 321 $ 219 $ (115 ) $ 425 December 31, 2013 $ 424 $ 47 $ (150 ) $ 321 We use and are dependent upon a number of single source suppliers of raw materials, components, finished goods and sterilization services. We are dependent on the ability of our suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers would have a material adverse effect on us, at least in the near term. We believe that our relationships with our suppliers are satisfactory. Fair Value Measurements U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets that may be measured at fair value on a nonrecurring basis. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows: Level 1 Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 Observable inputs other than Level 1 prices, such as 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 market data for substantially the full term of the assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Derivative Instruments and Hedging Derivative instruments, namely our foreign exchange forward contracts, are recognized on the balance sheet at fair value at the balance sheet date. Changes in the fair value of derivatives that are designated and highly effective as cash flow hedges are deferred in accumulated other comprehensive income (loss) and subsequently recognized in cost of revenues in the same period the hedged items are recognized. The ineffective portion of derivative instruments designated as cash flow hedges, are recorded in other income (expense), net. If the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the gains and losses on the related derivative instrument are recognized in earnings and any related gains and losses recorded in other comprehensive income (loss) are reclassified into earnings. Inventory Inventory is stated at the lower of cost, determined using the first-in first-out method (FIFO), or market (net realizable value). We write down the carrying value of inventory for estimated obsolescence when warranted by an amount equal to the difference between the cost of inventory and the estimated market value based on assumptions of future demand and remaining shelf-life. We also review our inventory value to determine if it reflects the lower of cost or market based on factors such as inventory items sold at negative gross margins and purchase commitments. Property and Equipment and Field Equipment Property and equipment and field equipment are recorded at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated useful lives of our assets are periodically reviewed for reasonableness. Changes in useful lives are accounted for prospectively. Repairs and maintenance are expensed as incurred. When property and equipment are retired, sold or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. When field equipment is sold, the asset's carrying amount and related accumulated depreciation is removed from the accounts and any gain or loss is deferred and recognized in operations on a straight-line basis over the same period as the related revenues. We capitalize certain costs, including internal payroll and external direct project costs, incurred in connection with developing or obtaining software designated for internal use. These costs are included in property and equipment and are amortized over the estimated useful lives of the related software. Construction-in-process is stated at cost, which includes the cost of construction and other direct costs attributable to the construction. No provision for depreciation is made on construction-in-process until such time as the relevant assets are completed and put into use. Construction-in-process at December 31, 2015 and 2014 primarily represents the costs of building, machinery and equipment under installation. Field equipment consists of equipment being utilized under disposable-based rental agreements as well as “service pool” equipment. Service pool equipment is equipment owned and maintained by us that are swapped for equipment that need repairs or maintenance by us while being rented or owned by a customer. We record a provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment in the service pool. Write-downs for equipment are included in distribution expenses. The estimated useful lives of property and equipment and field equipment are as follows: Estimated Useful Life Buildings 30 years Manufacturing equipment and tooling 5 to 12 years Leasehold improvements Lesser of the lease term (including any renewal periods if appropriate) or estimated useful life of the asset Computer and office equipment 3 to 5 years Molds 5 to 7 years Furniture 5 to 7 years Field equipment 5 to 7 years Intangibles and Other Long-Lived Assets Intangible assets are carried at cost less accumulated amortization. For assets with determinable useful lives, amortization is computed using the straight-line method over the estimated economic lives of the respective intangible assets, ranging from eight to fourteen years. Long-lived assets, including intangible assets, are tested for recoverability whenever events or circumstances indicate that their carrying value may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying value of an asset to the future net cash flows directly associated with the assets. If an asset is considered impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the asset, which is determined using estimated discounted cash flows to be generated from such assets or other methods, if appropriate. During 2015 , 2014 and 2013 , no significant impairment was recognized. Future events and circumstances may indicate that certain long-lived tangible assets in the Services segment, specifically leasehold improvements at our NxStage Kidney Care dialysis centers, may not be recoverable due to factors such as timing of CMS certification, patient growth, and payer mix. As of December 31, 2015, our estimate of future net cash flows indicated that such carrying amounts were expected to be recovered. Estimating future net cash flows requires significant estimates and judgment. Changes in market conditions, including delays in CMS certification, slower than expected patient growth or unfavorable payor mix would negatively impact our estimated future net cash flows in the near term, which could result in the need to write down those assets to fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs. Goodwill Goodwill represents the excess of the cost of an acquired business over the acquisition value of the related net assets at the date of acquisition. We test goodwill at least annually for impairment, or more frequently when events or changes in circumstances indicate that the goodwill might be impaired. This impairment test is performed annually during the fourth quarter. This test includes first a qualitative assessment and then, if necessary, a quantitative assessment to determine if the fair value of a reporting unit is less than its carrying amount. Our reporting units that contain goodwill are our System One and In-center operating segments. Factors considered in the qualitative assessment include, but are not limited to, both macroeconomic conditions and entity-specific conditions. For the quantitative assessment the reporting unit's fair value is estimated using a discounted cash flow or other fair value measurement. During both 2015 and 2014, we utilized the qualitative assessment and concluded that it was more likely than not that the fair value of our reporting units was greater than their carrying value. During 2013, we utilized the quantitative assessment and concluded the fair value of our reporting units exceeded their carrying values, indicating that goodwill was not impaired. We estimated the fair value of our reporting units using a discounted cash flow approach which involves significant judgment with respect to future revenue growth, operating income, capital expenditures, changes in working capital use and the selection of a discount rate. Stock-Based Compensation Stock-based compensation expense is estimated as of the grant date based on the fair value of the award. We use the Black-Scholes option pricing model to estimate the fair value of stock options and quoted market prices of our common stock to estimate fair value of restricted stock. The expected term is estimated based on the contractual term of each grant and takes into account the historical experience and relevant factors concerning expected exercise and termination behavior of participants. The risk free interest rate for each grant is equal to the U.S. Treasury rate in effect at the time of grant for instruments with an expected life similar to the expected term. The stock volatility assumption is based solely on our historical volatility over the expected term of the award. The dividend yield of zero is based upon the fact that we have not historically granted cash dividends, and do not expect to issue dividends in the foreseeable future. We recognize stock-based compensation expense over the requisite service period, which equals the vesting period, net of forfeitures. Forfeiture rates are estimated based on historical pre-vesting forfeiture history and are updated on a quarterly basis to reflect actual forfeitures of unvested awards and other known events. For awards that vest based on employment, we recognize the associated compensation expense on a straight-line basis. For performance based awards, we recognize expense using the graded vesting methodology based on the number of shares expected to vest. Compensation expense associated with these performance based awards is adjusted quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions until the date the results are determined. Warranty Costs We accrue estimated costs that we may incur under our product warranty programs at the time the product revenue is recognized, based on contractual rights and historical experience. Warranty expense is included in cost of revenues in the consolidated statements of comprehensive loss. The following is a rollforward of our warranty accrual (in thousands): Year Ended Balance at Beginning of Year Provision Usage Balance at End of Year December 31, 2015 $ 287 $ 526 $ (424 ) $ 389 December 31, 2014 $ 297 $ 441 $ (451 ) $ 287 December 31, 2013 $ 324 $ 412 $ (439 ) $ 297 Distribution Expenses Distribution expenses are charged to operations as incurred and consist of costs incurred in shipping product to and from customers and the cost of any equipment lost or damaged in the distribution process. Shipping and handling costs billed to customers are included in revenues. Research and Development Costs Research and development costs are charged to operations as incurred. Income Taxes We record the tax effect of transactions when such transactions are recorded in our consolidated statement of comprehensive loss. We record a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates. Our provision for income taxes represents the amount of taxes currently payable, if any, plus the change in the amount of net deferred tax assets or liabilities. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. We periodically assess our exposures related to our provisions for income taxes and accrue for contingencies that may result in potential tax obligations. For those positions where it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. We recognize interest and penalties for uncertain tax positions in income tax expense. We conduct business globally and file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. We estimate our income taxes in each of the jurisdictions in which we operate. We have accumulated significant losses since our inception in 1998. The utilization of these losses may be limited in future years based on the profitability of certain entities. Subsequent Events Events occurring subsequent to December 31, 2015 have been evaluated for potential recognition or disclosure in the consolidated financial statements. Recent Accounting Pronouncements Recently Implemented Accounting Pronouncements In February 2015, the FASB issued ASU No. 2015-2, Consolidation (Topic 810): "Amendments to the Consolidation Analysis." This update eliminates the deferral of FAS 167, which has allowed entities with interests in certain investment funds to follow the previous consolidation guidance in FIN 46(R), and makes other changes to both the variable interest model and the voting model. The update is effective for us beginning January 1, 2016. We have early adopted the standard, as permitted. ASU 2015-2 does not have a material impact on our financial statements. In April 2015, the FASB issued ASU No. 2015-3, Interest - Imputation of Interest (Subtopic 835-30): "Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for us beginning January 1, 2016. We have early adopted the standard, as permitted. ASU 2015-3 does not have a material impact on our financial statements. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): "Balance Sheet Classification of Deferred Taxes". To simplify the presentation of deferred income taxes, the amendments in this update require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We have early adopted the standard, as permitted as of December 31, 2015. The adoption only impacted presentation on our consolidated financial statements and related disclosure. No prior periods were retrospectively adjusted. Recent Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU No. 2014-9, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance initially was effective for us beginning January 1, 2017, but on July 9, 2015 the FASB deferred the effective date and, as a result, the new guidance is effective for us beginning January 1, 2018. Companies may adopt the new revenue standard as of the original effective date. We are currently evaluating the method of adoption and the potential impact this standard will have on our financial statements. In April 2015, the FASB issued ASU No. 2015-5, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." Under this standard, if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The update was effective for us beginning January 1, 2016. The adoption of this standard is not expected to have a material impact on our financial position or results of operations. In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): "Simplifying the Measurement of Inventory." The update requires that an entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments will be effective for us beginning January 1, 2017. We are currently evaluating the potential impact this standard will have on our financial statements. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): "Simplifying the Accounting for Measurement-Period Adjustments". The new standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard was effective for us beginning January 1, 2016. The adoption of this standard is not expected to have an impact on our financial statements. |
