Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note Regarding Company References and Trademarks
Unless the context otherwise requires, references to the “Company” and “Lantheus” refer to Lantheus Holdings, Inc. and its direct and indirect wholly-owned subsidiaries, references to “Holdings” refer to Lantheus Holdings, Inc. and not to any of its subsidiaries, and references to “LMI” refer to Lantheus Medical Imaging, Inc., the direct subsidiary of Holdings. Solely for convenience, the Company refers to trademarks, service marks and trade names without the ™,
SM
and
®
symbols. Those references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks, service marks and trade names.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lantheus Holdings, Inc. and its direct and indirect wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement have been included. The results of operations for the
three and nine
months ended
September 30, 2017
are not necessarily indicative of the results that may be expected for the year ended
December 31, 2017
or any future period.
The condensed consolidated balance sheet at
December 31, 2016
has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K for the year ended
December 31, 2016
filed with the Securities Exchange Commission (“SEC”) on February 23, 2017. Certain immaterial amounts in the prior period have been reclassified to conform to the current period financial statement presentation.
Manufacturing Concentrations
The Company currently relies on Jubilant HollisterStier (“JHS”) as its sole source manufacturer of DEFINITY, Neurolite, Cardiolite and evacuation vials for TechneLite. The Company has on-going development and technology transfer activities for a next generation DEFINITY product with Samsung BioLogics (“SBL”) located in Songdo, South Korea, approximately 20 miles southwest of Seoul, but can give no assurances as to when those technology transfer activities will be completed and when the Company will begin to receive supply of a next generation DEFINITY product from SBL. In addition, those activities could be adversely affected by on-going political and military tensions on the Korean peninsula.
2. Summary of Significant Accounting Policies
Collaboration and License Agreement with GE Healthcare Limited
On April 25, 2017, the Company announced that it entered into a definitive, exclusive Collaboration and License Agreement (the “License Agreement”) with GE Healthcare Limited (“GE Healthcare”) for the continued Phase III development and worldwide commercialization of flurpiridaz F 18, an investigational positron emission tomography myocardial perfusion imaging agent that may improve the diagnosis of coronary artery disease. Under the License Agreement, GE Healthcare will complete the worldwide development of flurpiridaz F 18, pursue worldwide regulatory approvals and, if successful, lead a worldwide launch and commercialization of the agent, with LMI collaborating on both development and commercialization through a joint steering committee. LMI has an option to co-promote the agent in the U.S. GE Healthcare’s development plan will initially focus on obtaining regulatory approval for flurpiridaz F 18 in the U.S., Japan, Europe and Canada.
Under the terms of the License Agreement, the Company received an up-front payment of
$5.0 million
. In addition, the Company is eligible to receive, from GE Healthcare, up to
$60 million
in regulatory and sales-based milestones and tiered double-digit royalties on U.S. sales and mid-single digit royalties on sales outside the U.S. Because the Company concluded there was only one significant deliverable under the License Agreement, consisting of the license of the product which occurred upon the signing of the License Agreement, the Company recognized
$5.0 million
associated with entering into the license as revenue during the nine months ended
September 30, 2017
. In addition, because the Company concluded that the regulatory and sales-based milestones are solely dependent on GE Healthcare’s performance and there are
no
continuing performance obligations from the Company, all development and sales milestones under the License Agreement are considered non-substantive. As of
September 30, 2017
, the Company has not recognized revenue for those milestones under the License Agreement and will recognize such revenue in the periods in which the milestones are achieved. Similarly, the Company will recognize royalty revenues in the periods of the sale of the related products, provided that the reported sales are reliably measurable, collectability is reasonably assured and the Company has no further performance obligations.
Recent Accounting Pronouncements
The following table provides a description of recent accounting pronouncements that may have a material effect on the Company’s condensed consolidated financial statements:
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|
|
|
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|
Standard
|
|
Description
|
|
Effective Date
for Company
|
|
Effect on the Condensed Consolidated Financial Statements
|
Recently Issued Accounting Standards Not Yet Adopted
|
|
|
|
|
ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
|
|
This ASU clarifies when to account for a change to the terms or conditions of a share–based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, vesting conditions or classification of the award (as equity or liability) changes as a result of the change in terms or conditions.
The new guidance will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for all entities. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued or made available for issuance.
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|
January 1, 2018
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|
The Company does not expect that the adoption of this standard will have a material impact on the Company’s condensed consolidated financial statements.
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ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) and related additional amendments ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-10
|
|
This ASU and related amendments affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year.
The standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods:
• A full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or
• A modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
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January 1, 2018
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The Company has established an implementation team which includes third-party specialists to assist in the evaluation and implementation of the new standard. The Company has completed its assessment of the impact of the standards on its contract portfolio by reviewing the Company’s current accounting policies and practices and identifying potential differences that would result from applying the requirements of the new standard to its revenue contracts. The Company has categorized its customers into multiple customer types and assessed significant customer arrangements within those customer types. The Company is currently in the process of formalizing its conclusion. At this time, the Company does not anticipate a significant impact to its revenue upon adoption of the new standard. The Company, in part due to the limited anticipated impact, will utilize the modified retrospective approach of adopting the ASU. In addition, during 2017 the Company has begun to identify and implement, if necessary, appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new standard.
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Standard
|
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Description
|
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Effective Date
for Company
|
|
Effect on the Condensed Consolidated Financial Statements
|
Accounting Standards Adopted During the Nine Months Ended September 30, 2017
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ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
|
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ASU 2016-09 simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance providing the following amendments:
• Accounting for income taxes upon vesting or exercise of share-based payments and related EPS effects
• Classification of excess tax benefits on the statement of cash flows
• Accounting for forfeitures
• Liability classification exception for statutory tax withholding requirements
• Cash flow presentation of employee taxes paid when an employer withholds shares for tax-withholding purposes
• Elimination of the indefinite deferral in Topic 718
For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
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|
January 1, 2017
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The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
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3. Fair Value of Financial Instruments
Fair value is defined 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. In order to increase consistency and comparability of fair value measurements, financial instruments are categorized based on a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
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•
|
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
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•
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Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
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•
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Level 3 — Unobservable inputs that reflect a Company’s estimates about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
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At
September 30, 2017
and
December 31, 2016
, the Company’s financial assets measured at fair value on a recurring basis consist of money mark
et funds. The Company invests excess cash from its operating cash accounts in overnight investments and reflects these amounts in cash and cash equivalents in the condensed consolidated balance sheets at fair value using quoted prices in active markets for identical assets.
The table below presents information about the Company’s assets and liabilitie
s measured at fair value on a recurring basis:
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Total Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
September 30, 2017
|
(in thousands)
|
Money market funds
|
$
|
6,565
|
|
|
$
|
6,565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,565
|
|
|
$
|
6,565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Money market funds
|
$
|
3,565
|
|
|
$
|
3,565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,565
|
|
|
$
|
3,565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
4. Income Taxes
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year in addition to discrete events which impact the interim period. The Company’s effective tax rate differs from the U.S. statutory rate principally due to the change in valuation allowance and the rate impact of uncertain tax positions. Cumulative adjustments to the tax provision are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. The Company’s tax provision was
$0.8 million
and
$20,000
for the three months ended
September 30, 2017
and
2016
, respectively, and
$2.1 million
and
$0.7 million
for the nine months ended
September 30, 2017
and
2016
, respectively.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realizability of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more-likely-than-not realizable, the Company evaluated all available positive and negative evidence, and weighed the objective evidence and expected impact. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance against its domestic net deferred tax assets beginning in 2011, and in each year thereafter. The Company was profitable on a cumulative basis for the three-year period ended
September 30, 2017
, but substantially all of that profitability was achieved during
2016
and the nine months ended
September 30, 2017
.
The Company continues to evaluate other negative evidence including customer concentration and contractual risk, DEFINITY supplier risk, the risk of Moly supply availability and cost, and certain product development risks, all of which provide for uncertainties around the Company’s future level of profitability. Based on its review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability sufficient to outweigh the objectively verifiable negative evidence, and has recorded a full valuation allowance against its domestic net deferred tax assets at
September 30, 2017
. The Company will continue to assess the level of the valuation allowance required. If a sufficient weight of positive evidence exists in future periods to support a release of some or all of the valuation allowance recorded against domestic deferred tax assets, such a release would likely have a material impact on the Company’s results of operations in that future period.
In connection with the Company’s acquisition of the medical imaging business from Bristol-Myers Squibb (“BMS”) in 2008, the Company entered into a tax indemnification agreement with BMS related to certain tax obligations arising prior to the acquisition of the Company, for which the Company has the primary legal obligation. The tax indemnification receivable is recognized within other long-term assets. The changes in the tax indemnification asset are recognized within other income in the condensed consolidated statement of operations. In accordance with the Company’s accounting policy, the change in the contingent tax liability, and penalties and interest associated with these obligations (net of any offsetting federal or state benefit) is recognized within the tax provision. Accordingly, as these reserves change, adjustments are included in the tax provision while the offsetting adjustment is included in other income. Assuming that the receivable from BM
S continues to be considered recoverable by the Company, there is no net effect on earnings related to these liabilities and no net cash outflows.
5
. Inventory
Inventory consisted of the following:
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|
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(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
Raw materials
|
$
|
10,699
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|
|
$
|
9,658
|
|
Work in process
|
5,571
|
|
|
3,965
|
|
Finished goods
|
6,762
|
|
|
4,017
|
|
Total inventory
|
$
|
23,032
|
|
|
$
|
17,640
|
|
As of
September 30, 2017
and
December 31, 2016
, the Company had
$1.2 million
of inventory classified within other long-term assets, which represent raw materials not expected to be used by the Company during the next twelve months.
6. Property, Plant & Equipment, Net
Property, plant & equipment, net, consisted of the following:
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|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
Land
|
$
|
14,950
|
|
|
$
|
14,950
|
|
Buildings
|
74,864
|
|
|
70,628
|
|
Machinery, equipment and fixtures
|
69,549
|
|
|
65,407
|
|
Computer software
|
18,463
|
|
|
18,482
|
|
Construction in progress
|
10,068
|
|
|
7,224
|
|
|
187,894
|
|
|
176,691
|
|
Less: accumulated depreciation and amortization
|
(93,378
|
)
|
|
(82,504
|
)
|
Total property, plant & equipment, net
|
$
|
94,516
|
|
|
$
|
94,187
|
|
Depreciation and amortization expense related to property, plant & equipment, net, was
$2.7 million
for the three months ended
September 30, 2017
and
2016
and
$11.7 million
and
$8.1 million
for the nine months ended
September 30, 2017
and
2016
, respectively.
7. Asset Retirement Obligations
The Company considers its legal obligation to remediate its facilities upon a decommissioning of its radioactive-related operations as an asset retirement obligation. The Company has production facilities which manufacture and process radioactive materials at its North Billerica, Massachusetts and San Juan, Puerto Rico sites.
The Company is required to provide the U.S. Nuclear Regulatory Commission and Massachusetts Department of Public Health financial assurance demonstrating the Company’s ability to fund the decommissioning of its North Billerica, Massachusetts production facility upon closure, although the Company does not intend to clos
e the facility. The Company has provided this financial assurance in the form of a
$28.2 million
surety bond.
The fair value of a liability for asset retirement obligations is recognized in the period in which the liability is incurred. As of
September 30, 2017
, the liability is measured at the present value of the obligation expected to be incurred, of approximately
$26.9 million
, and is adjusted in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying values of the related long-lived assets and depreciated over the assets’ useful lives.
The following table provides a summary of the changes in the Co
mpany’s asset retirement obligations:
|
|
|
|
|
(in thousands)
|
Amount
|
Balance at January 1, 2017
|
$
|
9,370
|
|
Accretion expense
|
781
|
|
Balance at September 30, 2017
|
$
|
10,151
|
|
8. Financing Arrangements
On
March 30, 2017
, the Company refinanced its previous
$365 million
seven
-year term loan agreement (the facility thereunder, the “2015 Term Facility”) with a new
five
-year
$275 million
term loan facility (the “2017 Term Facility” and the loans thereunder, the “Term Loans”). In addition, the Company replaced its previous
$50.0 million
five
-year asset based loan facility (the “ABL Facility”) with a new
$75.0 million
five
-year revolving credit facility (the “2017 Revolving Facility” and, together with the 2017 Term Facility, the “2017 Facility”). The terms of the 2017 Facility are set forth in that certain Amended and Restated Credit Agreement, dated as of
March 30, 2017
(the “Credit Agreement”), by and among Holdings, the Company, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. The 2017 Term Facility was issued net of a
$0.7 million
discount. The Company has the right to request an increase to the 2017 Term Facility or request the establishment of one or more new incremental term loan facilities, in an aggregate principal amount of up to
$75.0 million
, plus additional amounts, in certain circumstances.
The net proceeds of the 2017 Term Facility, together with approximately
$15.3 million
of cash on hand, were used to refinance in full the aggregate remaining principal amount of the loans outstanding under the 2015 Term Facility and pay related interest, transaction fees and expenses.
No
amounts were outstanding under the ABL Facility at that time. The Company accounted for the refinancing as both a debt extinguishment and debt modification by evaluating the refinancing on a creditor by creditor basis. The Company recorded a loss on extinguishment of debt of
$2.2 million
related to the write-off of unamortized debt issuance costs and incurred general and administrative expenses of
$1.7 million
related to third-party costs associated with the modified debt. In addition, the Company incurred and capitalized
$1.6 million
of new debt issuance costs related to the refinancing.
2017 Term Facility
The Term Loans under the 2017 Term Facility bear interest, with pricing based from time to time at the Company’s election at (i) LIBOR plus a spread of
4.50%
or (ii) the Base Rate (as defined in the Credit Agreement) plus a spread of
3.50%
. Interest is payable (i) with respect to LIBOR Term Loans, at the end of each Interest Period (as defined in the Credit Agreement) and (ii) with respect to Base Rate Term Loans, at the end of each quarter. At
September 30, 2017
, the Company’s interest rate under the 2017 Term Facility was
5.7%
.
The Company is permitted to voluntarily prepay the Term Loans, in whole or in part. The 2017 Term Facility requires the Company to make mandatory prepayments of the outstanding Term Loans in certain circumstances. The 2017 Term Facility amortizes at
1.00%
per year until its
June 30, 2022
maturity date.
The Company’s maturities of principal obligations under the 2
017 Term Facility are as follows as of
September 30, 2017
:
|
|
|
|
|
(in thousands)
|
Amount
|
Remainder of 2017
|
$
|
688
|
|
2018
|
2,750
|
|
2019
|
2,750
|
|
2020
|
2,750
|
|
2021
|
2,750
|
|
2022
|
261,937
|
|
Total principal outstanding
|
273,625
|
|
Unamortized debt discount
|
(2,273
|
)
|
Unamortized debt issuance costs
|
(3,079
|
)
|
Total
|
268,273
|
|
Less: current portion
|
(2,750
|
)
|
Total long-term debt
|
$
|
265,523
|
|
2017 Revolving Facility
Under the terms of the 2017 Revolving Facility, the lenders thereunder agreed to extend credit to the Company from time to time until
March 30, 2022
(the “Revolving Termination Date”) consisting of revolving loans (the “Revolving Loans” and, together with the Term Loans, the “Loans”) in an aggregate principal amount not to exceed
$75.0 million
(the “Revolving Commitment”) at any time outstanding. The 2017 Revolving Facility includes a
$20.0 million
sub-facility for the issuance of letters of credit (the “Letters of Credit”). The Letters of Credit and the borrowings under the 2017 Revolving Facility are expected to be used for working capital and other general corporate purposes.
The Revolving Loans under the 2017 Revolving Facility bear interest, with pricing based from time to time at the Company’s election at (i) LIBOR plus a spread of
3.50%
or (ii) the Base Rate (as defined in the Credit Agreement) plus a spread of
2.50%
. The 2017 Revolving Facility also includes an unused line fee, which is set at
0.375%
while the Company’s secured leverage ratio (as defined in the Credit Agreement) is greater than
3.00
to 1.00 and
0.25%
when the Company’s secured leverage ratio is less than or equal to
3.00
to 1.00.
The Company is permitted to voluntarily prepay the Revolving Loans, in whole or in part, or reduce or terminate the Revolving Commitment, in each case, without premium or penalty. On any business day on which the total amount of outstanding Revolving Loans and Letters of Credit exceeds the total Revolving Commitment, the Company must prepay the Revolving Loans in an amount equal to such excess. As of
September 30, 2017
, there were
no
outstanding borrowings under the 2017 Revolving Facility.
2017 Facility Covenants
The 2017 Facility contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds. The 2017 Facility requires the Company to be in quarterly compliance, measured on a trailing four quarter basis, with a financial covenant. The maximum consolidated leverage ratio permitted by the financial covenant is displayed in the table below:
2017 Facility Financial Covenant
|
|
|
Period
|
Consolidated
Leverage Ratio
|
Q3 2017 through Q1 2018
|
5.00 to 1.00
|
Q2 2018 through Q1 2019
|
4.75 to 1.00
|
Thereafter
|
4.50 to 1.00
|
The 2017 Facility contains usual and customary restrictions on the ability of the Company and its subsidiaries to: (i) incur additional indebtedness (ii) create liens; (iii) consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; (iv) sell certain assets; (v) pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments; (vi) make certain investments; (vii) repay subordinated indebtedness prior to stated maturity; and (viii) enter into certain transactions with its affiliates.
Upon an event of default, the administrative agent under the Credit Agreement will have the right to declare the Loans and other obligations outstanding immediately due and payable and all commitments immediately terminated or reduced.
The 2017 Facility is guaranteed by Holdings and Lantheus MI Real Estate, LLC (“LMI-RE”), and obligations under the 2017 Facility are generally secured by first priority liens over substantially all of the assets of each of LMI, Holdings and LMI-RE (subject to customary exclusions set forth in the transaction documents) owned as of March 30, 2017 or thereafter acquire
d.
9. Stock-Based Compensation
The following table presents stock-based compensation expense recognized in the Company’s accompanying condensed consolidated statements of operations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of goods sold
|
$
|
198
|
|
|
$
|
120
|
|
|
$
|
514
|
|
|
$
|
259
|
|
Sales and marketing
|
183
|
|
|
123
|
|
|
474
|
|
|
251
|
|
General and administrative
|
1,089
|
|
|
487
|
|
|
2,315
|
|
|
1,065
|
|
Research and development
|
187
|
|
|
147
|
|
|
461
|
|
|
294
|
|
Total stock-based compensation expense
|
$
|
1,657
|
|
|
$
|
877
|
|
|
$
|
3,764
|
|
|
$
|
1,869
|
|
Increase in Shares Reserved Under the 2015 Equity Incentive Plan
At the Company’s annual meeting of stockholders, held on April 27, 2017 (the “Annual Meeting”), the Company’s stockholders approved an amendment to the 2015 Equity Incentive Plan to increase the number of shares of common stock reserved for issuance thereunder by
1,200,000
shares, to an aggregate of
5,755,277
shares.
Employee Stock Purchase Plan
At the Annual Meeting, the Company’s stockholders also approved the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which authorized the issuance of up to
250,000
shares of common stock thereunder. Under the terms of the 2017 ESPP, eligible U.S. employees can elect to acquire shares of the Company’s common stock through periodic payroll deductions during a series of six month offering periods, which will generally begin in March and September of each year. Purchases under the 2017 ESPP are effected on the last business day of each offering period at a
15%
discount to the closing price on that day. The 2017 ESPP was implemented, subject to stockholder approval, on
March 10, 2017
, and the first purchases thereunder were made on
September 13, 2017
.
10. Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the potential dilutive effect of other securities if those securities were converted or exercised. During periods in which the Company incurs net losses, both basic and diluted loss per share is calculated by dividing the net loss by the weighted-average shares outstanding and potentially dilutive securities are excluded from the calculation because their effect would be antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands, except per share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
$
|
8,526
|
|
|
$
|
4,220
|
|
|
$
|
26,259
|
|
|
$
|
21,893
|
|
Basic weighted-average common shares outstanding
|
37,393
|
|
|
31,221
|
|
|
37,174
|
|
|
30,658
|
|
Effect of dilutive stock options
|
318
|
|
|
1,084
|
|
|
371
|
|
|
391
|
|
Effect of dilutive restricted stock awards
|
1,410
|
|
|
97
|
|
|
1,426
|
|
|
—
|
|
Diluted weighted-average common shares outstanding
|
39,121
|
|
|
32,402
|
|
|
38,971
|
|
|
31,049
|
|
Basic income per common share outstanding
|
$
|
0.23
|
|
|
$
|
0.14
|
|
|
$
|
0.71
|
|
|
$
|
0.71
|
|
Diluted income per common share outstanding
|
$
|
0.22
|
|
|
$
|
0.13
|
|
|
$
|
0.67
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
Antidilutive securities excluded from diluted income per common share
|
322
|
|
|
448
|
|
|
378
|
|
|
1,873
|
|
11. Other (Income) Expense
Other (income) expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Foreign currency (gains) losses
|
$
|
(414
|
)
|
|
$
|
349
|
|
|
$
|
(554
|
)
|
|
$
|
330
|
|
Tax indemnification income
|
(489
|
)
|
|
(196
|
)
|
|
(1,469
|
)
|
|
(632
|
)
|
Other income
|
(5
|
)
|
|
(5
|
)
|
|
(14
|
)
|
|
(15
|
)
|
Total other (income) expense
|
$
|
(908
|
)
|
|
$
|
148
|
|
|
$
|
(2,037
|
)
|
|
$
|
(317
|
)
|
12
. Legal Proceedings and Contingencies
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. In addition, the Company has in the past been, and may in the future be, subject to investigations by governmental and regulatory authorities, which expose it to greater risks associated with litigation, regulatory or other proceedings, as a result of which the Company could be required to pay significant fines or penalties. The outcome of litigation, regulatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to the Company. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against the Company, could materially and adversely affect its financial condition or results of operations.
As of
September 30, 2017
, the Company has no material ongoing litigation in which the Company was a party or any material ongoing regulatory or other proceedings and had no knowledge of any investigations by government or regulatory authorities in which the Company is a target that could have a material adverse effect on its current business.
13. Related Party Transactions
Related party expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
Transaction Type
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Avista Capital Partners, L.P. and its affiliates*
|
Offering costs paid on behalf of Avista pursuant to registration rights agreement
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
326
|
|
|
$
|
—
|
|
INC Research Holdings, Inc. (“INC”)**
|
Pharmacovigilance services
|
—
|
|
|
293
|
|
|
—
|
|
|
647
|
|
VWR Scientific*
|
Inventory supplies
|
—
|
|
|
60
|
|
|
297
|
|
|
245
|
|
Total related party expenses
|
|
$
|
—
|
|
|
$
|
353
|
|
|
$
|
623
|
|
|
$
|
892
|
|
* During the quarter ended
September 30, 2017
, Avista Capital Partners, L.P., Avista Capital Partners (Offshore), L.P. and ACP-Lantern Co-Invest, LLC (collectively, “Avista”) distributed approximately
6.3 million
shares of common stock of the Company in the aggregate, representing the remainder of their holdings in the Company. The transactions were effected as distributions-in-kind of the Company’s common stock to the investors in those investment funds. As such, Avista and VWR Scientific (an entity in which Avista had an interest) are no longer related parties.
** During the year ended
December 31, 2016
, investment funds affiliated with Avista disposed of shares of INC common stock held by them. As a result, such investment funds were no longer a principal owner of INC. Related party expenses included in this table represent expenses incurred during the period under which investment funds affiliated with Avista held an investment in INC.
Amounts billed and unbilled for related parties included in accounts payable and accrued expenses are immaterial at
December 31, 2016
.
14. Segment Information
The Company reports
two
operating segments, U.S. and International, based on geographic customer base. The results of these operating segments are regularly reviewed by the Company’s chief operating decision maker, the President and Chief Executive Officer. The Company’s segments derive revenues through the manufacture, marketing, selling and distribution of medical imaging products, focused primarily on cardiovascular diagnostic imaging. All goodwill has been allocated to the U.S. operating segment. The Company does not identify or allocate assets to its segments.
Selected information for each operating segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues from external customers
|
|
|
|
|
|
|
|
U.S.
|
$
|
69,579
|
|
|
$
|
62,621
|
|
|
$
|
218,706
|
|
|
$
|
192,687
|
|
International
|
10,362
|
|
|
10,442
|
|
|
31,431
|
|
|
34,816
|
|
Total revenues from external customers
|
$
|
79,941
|
|
|
$
|
73,063
|
|
|
$
|
250,137
|
|
|
$
|
227,503
|
|
Operating income
|
|
|
|
|
|
|
|
U.S.
|
$
|
12,243
|
|
|
$
|
11,649
|
|
|
$
|
40,306
|
|
|
$
|
35,941
|
|
International
|
579
|
|
|
946
|
|
|
2,340
|
|
|
8,506
|
|
Total operating income
|
12,822
|
|
|
12,595
|
|
|
42,646
|
|
|
44,447
|
|
Interest expense
|
4,442
|
|
|
6,792
|
|
|
14,147
|
|
|
20,799
|
|
Debt retirement costs
|
—
|
|
|
1,415
|
|
|
—
|
|
|
1,415
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
2,161
|
|
|
—
|
|
Other (income) expense
|
(908
|
)
|
|
148
|
|
|
(2,037
|
)
|
|
(317
|
)
|
Income before income taxes
|
$
|
9,288
|
|
|
$
|
4,240
|
|
|
$
|
28,375
|
|
|
$
|
22,550
|
|
15. Subsequent Events
On October 30, 2017, LMI entered into a binding commercial supply arrangement pursuant to which LMI will supply Cardinal Health with TechneLite generators, Xenon, Neurolite and other products through 2018. The supply arrangement specifies pricing levels and requires Cardinal Health to purchase minimum volumes of certain products from LMI during certain periods. The supply arrangement will expire on December 31, 2018 and may be terminated upon the occurrence of specified events, including a material breach by the other party and certain force majeure events.