Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
You should read the following discussion and analysis of our financial condition and results of our operations
in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this report. This discussion contains forward-looking statements reflecting
our current expectations that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a
number of factors, including those discussed in the section entitled "Risk Factors," and elsewhere in this prospectus. We are on a calendar year end, and except where otherwise indicated below, "2012"
refers to the year ended December 31, 2012, "2011" refers to the year ended December 31, 2011 and "2010" refers to the year ended December 31, 2010.
Overview
CardioNet provides cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory
services. The Company operates under three segments: patient services, product, and research services. Prior to 2012, the company operated under two segments: patient services and product. The patient
services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through its core Mobile Cardiac Outpatient Telemetry
("MCOT"), event and Holter services in a healthcare setting. The product business segment focuses on the development, manufacturing, testing and marketing of medical devices to medical
companies, clinics and hospitals. The Company's research services focuses on providing cardiac safety monitoring services for drug and medical treatment trials in a research environment.
In
February 2012, the Company completed the acquisition of ECG Scanning & Medical Services, Inc. ("ECG Scanning"). ECG Scanning is engaged in providing cardiac monitoring
services to general practitioners, internal medicine specialists, cardiologists and hospital cardiac care departments. The acquisition gives the Company access to established customer relationships.
In
August 2012, the Company completed the acquisition of Cardiocore Lab, Inc. ("Cardiocore"). Cardiocore is engaged in central core laboratory services that provide cardiac
monitoring for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical companies and contract research organizations. The acquisition gives the Company access to industry
expertise, an established operating structure and a substantial footprint in the core lab industry.
The Company established a relationship with Verizon in May 2003. Verizon is the sole provider of wireless cellular data connectivity
solutions, data hosting and queuing services for the Company's monitoring network. The Company has no fixed or minimum financial commitment as it relates to network usage or volume activity. However,
if the Company utilizes the monitoring and
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communications
services of a provider other than Verizon, the Company may be subject to penalties and Verizon has the right to terminate its relationship with the Company. To date, no penalties have
been incurred related to this agreement.
The Company is dependent on reimbursement for its patient services by government and commercial insurance payors. Medicare
reimbursement rates for the Company's event, Holter and pacemaker monitoring services have been established nationally by the Centers for Medicare and Medicaid Services ("CMS") for many years, and
fluctuate periodically based on the annually published CMS rate table.
The
American Medical Association ("AMA") established CPT codes covering MCOT services which became effective on January 1, 2009. At that time, Highmark Medicare
Services ("HMS") was responsible for setting the Medicare reimbursement rate on behalf of CMS for MCOT services. Reimbursement prior to the use of the MCOT specific CPT codes
was obtained through non-specific billing codes. Effective September 1, 2009, HMS reduced the Medicare reimbursement rate for MCOT services to $754 per service, a
reduction of approximately 33%. CMS publishes the reimbursement rates for CPT codes for the following year in November. The reimbursement rates for 2011 and 2012 were $739 and $734, respectively.
Beginning in February 2012, the Company moved its monitoring for Medicare patients to San Francisco, CA. The reimbursement rate for Medicare patients serviced in the San Francisco, CA facility,
adjusted for local geographic pricing, was $943 per service in 2012 and is $1,000 in 2013.
In
addition to government reimbursement through Medicare, the Company has entered into contracts with commercial insurance carriers for its MCOT, event, Holter and pacemaker
monitoring services. As of December 31, 2012, we have 400 contracts with commercial payors that cover all of our monitoring services compared to 356 at December 31, 2011. We have
reimbursement contracts representing approximately 65% of the current estimated total of over 200 million covered lives for Medicare and commercial insurance carriers in the United States. In
addition, we have approximately 52 contracts with commercial payors that pertained only to event, Holter and pacemaker services. The majority of the remaining covered lives are insured by a relatively
small number of large commercial insurance companies that have deemed MCOT to be experimental in nature and do not currently reimburse for services.
Commercial
reimbursement pricing for our services has declined over the past three years. Commercial pricing is affected by numerous factors, including the current Medicare reimbursement
rates,
competitive pressures, our ability to successfully negotiate favorable terms in our agreements and the perceived value and effectiveness of our services.
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have
prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosures. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under
the circumstances; however, actual results may differ from these estimates. We review our estimates and judgments on an ongoing basis.
We
believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results. Our significant accounting
policies are more fully described in Note 2 to our consolidated financial statements.
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Revenue Recognition
Patient Services Segment
Patient services revenue includes revenue from MCOT, event, Holter and pacemaker monitoring services. The Company receives
a significant portion of its revenue from third party commercial insurance organizations and governmental entities. It also receives reimbursement directly from patients through co-pay and
self-pay arrangements. Billings for services reimbursed by contract third party payors, including Medicare, are recorded as revenue net of contractual allowances. Adjustments to the
estimated receipts, based on final settlement with the third party payors, are recorded upon settlement. If the Company does not have sufficient historical information regarding collectability from a
given payor to support revenue recognition at the time of service, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until service is performed. For the years
ended December 31, 2012, 2011 and
2010, revenue from Medicare as a percentage of the Company's total revenue was 37%, 33% and 35%, respectively.
Product revenue includes revenue from product sales and repairs. The Company's product revenue is recognized at the time of sale.
Research services revenue includes revenue for research and core laboratory services. The Company's research services revenues are
provided on a fee for services basis, and revenue is recognized as the related services are performed. We also provide consulting services on a time and materials basis and recognize revenues as we
perform the services. Our site support revenue, consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental
period. Under a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront deposit, some of which is typically nonrefundable upon contract
termination. Unearned revenues are deferred, and then recognized as the services are performed.
For
arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management's best
estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.
We
record reimbursements received for out-of-pocket expenses, including freight, incurred as revenue in the accompanying consolidated statements of operations.
Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities.
Accounts receivable related to the patient services segment are recorded at the time revenue is recognized, net of contractual
allowances, and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been
provided and billed. The Company records an allowance for doubtful accounts based on the aging of the receivable using historical Company-specific data. The percentages and amounts used to record bad
debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections, and the aging of specific receivables. Because of
continuing changes in the health care industry and third party reimbursement, it is possible that our estimates could change, which could have a material impact on our operations and cash flows.
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Accounts
receivable related to the product and research services segments are recorded at the time revenue is recognized, or when products or services become billable. The Company
estimates the allowance for doubtful accounts on a specific account basis, and considers several factors in its analysis including customer specific information and aging of the account.
The
Company will write-off receivables when the likelihood for collection is remote, the receivables have been fully reserved, and when the Company believes collection
efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The Company performs write-offs on a quarterly basis. The Company wrote
off $14.2 million and $14.0 million of receivables for the years ended December 31, 2012 and 2011, respectively. The impact was a reduction of gross receivables and a reduction in
the allowance for doubtful accounts. The Company recorded bad debt expense of $11.9 million and $12.1 million for the years ended December 31, 2012 and 2011, respectively.
ASC 718,
CompensationStock Compensation
, addresses the accounting for
share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments.
ASC 718 requires that an entity measure the cost of equity-based service awards based on the grant-date fair value of the award and recognize the cost of such awards over the period during
which the employee is required to provide service in exchange for the award (the vesting period). ASC 718 requires that an entity measure the cost of liability-based service awards based on current
fair value that is re-measured subsequently at each reporting date through the settlement date. The Company accounts for equity awards issued to non-employees in accordance
with ASC 505-50,
Equity-Based Payments to Non-Employees
.
We
estimate the fair value of our share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the use
of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of the Company's stock and the expected term of the award.
We base our estimates of expected volatility on the historical volatility of our stock price. The expected term represents the period of time that stock-based awards granted are expected to be
outstanding. Other assumptions used in the Black-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for
periods pertaining to the contractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect to pay,
dividends in the foreseeable future. The fair value of our stock-based awards was estimated at the date of grant using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Expected volatility
|
|
|
63.4
|
%
|
|
62.0
|
%
|
|
65.0
|
%
|
Expected term (in years)
|
|
|
6.31
|
|
|
6.25
|
|
|
6.25
|
|
Weighted-average risk-free interest rate
|
|
|
1.15
|
%
|
|
2.48
|
%
|
|
2.29
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Weighted-average grant date fair value per share
|
|
$
|
1.58
|
|
$
|
2.82
|
|
$
|
3.95
|
|
ASC
718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. Forfeitures are estimated
based on our historical experience and distinct groups of employees that have similar historical forfeiture behavior are considered for expense recognition.
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Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities
assumed in a business combination. In accordance with ASC 350, IntangiblesGoodwill and Other, goodwill is reviewed for impairment annually, or when events arise that could indicate that
impairment exists. The provisions of ASC 350 require that the Company perform a two-step impairment test. In the first step, the Company compares the fair value of its reporting units to
the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment
test is performed in order to determine the implied fair value of the reporting units' goodwill. If the carrying value of the reporting units' goodwill exceeds its implied fair value, an impairment
loss equal to the difference is recorded.
For
the purpose of performing its goodwill impairment analysis, the Company considers its business to be comprised of three reporting units, patient services, products and research
services. The Company calculates the fair value of the reporting units utilizing the income and market approaches. The income approach is based on a discounted cash flow methodology that includes
assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant
judgment. The market approach utilizes the Company's market data. There are inherent uncertainties related to these factors and the judgment applied in the analysis. The Company believes that the
combination of an income and a market approach provides a reasonable basis to estimate the fair value of its reporting units.
The
Company performed a goodwill impairment analysis for the year ended December 31, 2012. This analysis did not indicate goodwill impairment in any of the reporting units. For
the year ended December 31, 2011, the Company recognized an impairment charge of $46.0 million related to the patient services reporting unit. This charge had no effect on the Company's
operations, cash balances or cash flows.
Statements of Operations Overview
The vast majority of our revenue is derived from cardiac monitoring services, sales of product and research services. The amount of
patient service revenue generated is based on the number of patients enrolled through physician prescriptions and the rates reimbursed to us by commercial payors, patients and Medicare. Consistent
with the economic life cycle of a premium service that is introduced and achieves successful market penetration, we expect MCOT pricing to decline over time due to competition and the
introduction of new technologies. Event, Holter and pacemaker monitoring services utilize widely accepted technologies, and we expect the price to remain relatively constant or slightly decline in the
long-term.
Other
sources of revenue include revenue generated from the sale of cardiac monitoring products to third-party distributors and service providers in our products segment. Product revenue
is driven by the number of the units purchased by our customers, and the relative per unit pricing for various products. The average price per unit and volume for our product segment has been
relatively consistent over the past several years. We expect revenue to remain constant or decrease slightly.
Additionally,
revenue is generated in the research services segment through various study and consulting services, which includes activities such as project management, cardiac
monitoring services, data management, equipment rental and customer support. Research services revenue is driven by our ability to enter into service contracts at various phases of the pharmaceutical
drug development lifecycle. We expect volume to increase as the pharmaceutical industry moves increasingly towards central core lab services to conduct cardiac safety studies for drug development.
Negotiated pricing for
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services
contracts is subject to market pressures, but has remained relatively consistent over the last few years. We expect revenue from the research services segment to increase.
Gross profit consists of revenue less the cost of revenue.
Cost
of revenue for the patient services segment includes:
-
-
salaries and benefits for personnel providing various services and customer support to physicians and patients including
patient education, monitoring services, distribution services (scheduling, packaging and delivery of the devices to the patients), device repair and maintenance, and quality assurance;
-
-
cost of patient-related services provided by third-party subcontractors including device transportation to and from the
patient and cellular airtime charges related to transmission of ECGs to the CardioNet Monitoring Center;
-
-
consumable supplies sent to patients along with the durable components of MCOT devices; and
-
-
depreciation on our medical devices.
Cost
of revenue for the product segment includes the cost of materials and labor related to the manufacture of our products and product repair services.
Cost
of revenue for the research services segment includes:
-
-
depreciation on our medical devices;
-
-
cost of materials and transportation related to the sale of products and supplies;
-
-
cost of internal and third party medical specialists and technicians; and
-
-
salaries and benefits of personnel providing various services to customers including consulting, customer support, project
management and certain information technology support.
We
expect multiple factors to influence our gross profit margins in the foreseeable future. If reimbursement rates decline in our patient services segment, it would have an adverse
effect on our gross profit margin. Payor mix is unpredictable and dependent on the insurance coverage of patients that are prescribed our services. We expect to continue to achieve efficiencies in
cost of revenues through process improvements, as well as from a reduction in the cost of our devices. These factors will have a favorable impact on our gross profit margins. While these factors could
be offsetting, it is difficult to predict how they will influence our gross profit margins.
If
we experience volume or selling price declines in our product segment, or service contract pricing or volume declines in our research services segment, it would have an adverse effect
on our gross profit margin. We expect the cost of selling products and repairs to remain relatively consistent. We expect to achieve some efficiencies in the research services cost of sales through
process improvement, and expect a favorable impact on gross margins due to leveraging of the relatively fixed cost infrastructure.
General and administrative expense consists primarily of salaries and benefits related to general and administrative personnel,
stock-based compensation, management bonus, professional fees primarily related to legal and audit fees, amortization related to intangible assets, facilities expenses and the related overhead.
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Sales and marketing expense consists primarily of salaries, benefits, and commissions related to sales, marketing and contracting
personnel. Also included are marketing programs such as trade shows and advertising campaigns.
Research and development expense consists primarily of salaries and benefits of personnel as well as subcontractors who work on new
product development and sustaining engineering of our existing products.
Integration, Restructuring and Other Charges
Integration, restructuring and other charges are related to strategic acquisitions, cost reduction programs, reorganizations and
facility closures, as well as other costs that are not considered part of our ongoing business operations.
Results of Operations
Years Ended December 31, 2012 and 2011
Revenue.
Total revenue for the year ended December 31, 2012 was $111.5 million compared to $119.0 million for the year
ended
December 31, 2011, a decrease of $7.5 million, or 6.3%. The decrease was primarily related to lower patient services revenue of $13.2 million, driven by a decrease in the average
reimbursement rate resulting from a shift in services provided, and $1.6 million in the product segment due to lower volume. The decrease was partially offset by the inclusion of
$6.3 million in the research services segment due to the acquisition of Cardiocore.
Gross Profit.
Gross profit decreased to $65.9 million for the year ended December 31, 2012 from $69.9 million for the
year ended
December 31, 2011. The decrease of $4.0 million was due primarily to a decline in average selling price in the patient services segment and lower volume in the product segment. Also
impacting the margin was startup costs for the San Francisco monitoring facility. These decreases were offset by lower depreciation expense of $2.8 million, and additional gross profit due to
the inclusion of Cardiocore of $3.2 million. Gross profit as a percentage of revenue increased to 59.1% for the year ended December 31, 2012 compared to 58.8% for the year ended
December 31, 2011.
General and Administrative Expense.
General and administrative expense was $32.6 million for the year ended December 31, 2012
compared
to $35.0 million for the year ended December 31, 2011. The decrease of $2.4 million, or 6.8%, was due primarily due to lower payroll and other employee related expenses of
$5.1 million and other expenses of $0.6 million as a result of cost reduction initiatives in the patient services and product segments, partially offset by the inclusion of general and
administrative expenses of $3.3 million related to the acquisitions of ECG Scanning and Cardiocore. As a percentage of total revenues, general and administrative expense was 29.3% for the year
ended December 31, 2012 compared to 29.4% for the year ended December 31, 2011.
Sales and Marketing Expense.
Sales and marketing expense was $25.6 million for the year ended December 31, 2012 compared to
$27.8 million for the year ended December 31, 2011. The decrease of $2.2 million, or 8.0%, was primarily due to lower payroll and employee related expenses of $3.5 million,
offset by the inclusion of an additional $1.3 million of sales and marketing expense in the patient services and research services segments as a result of the ECG Scanning and Cardiocore
acquisitions. As a percentage of total revenues, sales and marketing expense was 23.0% for the year ended December 31, 2012 compared to 23.4% for the year ended December 31, 2011.
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Bad Debt Expense.
Bad debt expense was $11.9 million for the year ended December 31, 2012 compared to $12.1 million for
the year
ended December 31, 2011. The decrease of $0.2 million, or 1.4%, was primarily a result of improved cash collections due to process improvements during 2012 and lower patient services
revenue. The bad debt expense recorded was based on an evaluation of historical collection experience and a review of outstanding accounts receivable, by age, by payor class. As a percentage of total
revenues, bad debt expense was 10.7% and 10.1% for the years ended December 31, 2012 and 2011, respectively.
Research and Development Expense.
Research and development expense was $4.7 million for the year ended December 31, 2012
compared to
$5.7 million for the year ended December 31, 2011. The decrease of $1.0 million, or 18.1%, was primarily due to a decrease in production materials and outside consulting services
that were incurred in the prior year in connection with the development of our new MCOT device. As a percent of total revenue, research and development expense was 4.2% for the year ended
December 31, 2012 compared to 4.8% for the year ended December 31, 2011.
Integration, Restructuring and Other Charges.
The Company incurred integration, restructuring and other charges of $4.2 million
for the year
ended December 31, 2012. Restructuring and integration costs of $1.5 million were related to severances and other costs largely associated with the acquisition of ECG Scanning and
current year restructuring activities. Other charges incurred were for legal fees of $1.8 million related to the settlement of the class action lawsuit, $0.8 million for professional
services related to strategic initiatives, and other miscellaneous charges of $0.1 million. Integration, restructuring and other charges were 3.8% of total revenues for the year ended
December 31, 2012.
The
Company incurred integration, restructuring and other charges of $4.7 million for the year ended December 31, 2011. Restructuring and integration costs of
$1.0 million were related to severances and other costs largely associated with the acquisition of Biotel. Other charges incurred were for legal fees of $1.4 million related to the
settlement of the class action lawsuit, $1.1 million for professional services related to strategic initiatives, $1.0 million related to other litigation and miscellaneous charges of
$0.2 million. Integration, restructuring and other charges were 3.9% of total revenues for the year ended December 31, 2011.
Other Income.
Net interest income was $0.1 million for both the years ended December 31, 2012 and 2011. The Company had
additional
interest income, which were primarily offset by amortization of bond premiums during 2012.
Income Taxes.
The Company's effective tax rate was 6.9% for the year ended December 31, 2012 and was (0.40)% for the year ended
December 31, 2011. The tax expense resulted from certain state taxes that are based on gross receipts rather than income, as well as the effect of certain deferred tax liabilities related to
certain business acquisitions that occurred during 2012.
Net Loss.
The Company incurred a net loss of $12.2 million for the year ended December 31, 2012 compared to a net loss of
$61.4 million for the year ended December 31, 2011.
Years Ended December 31, 2011 and 2010
Revenue.
Total revenue for the year ended December 31, 2011 decreased to $119.0 million from $119.9 million for the year
ended
December 31, 2010, a decrease of $0.9 million, or 0.8%. Patient services revenue decreased $13.1 million due to slightly lower MCOT volume and contracted
reimbursement rates partially offset by increased event and Holter volumes. Substantially offsetting the patient services revenue decline was the inclusion of revenue resulting from our Biotel
acquisition of $12.2 million.
Gross Profit.
Gross profit decreased to $69.9 million for the year ended December 31, 2011 from $72.4 million for the
year ended
December 31, 2010. The decrease of $2.5 million was due to the
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decreased
revenues as well as higher cost of sales resulting from the acquisition of Biotel partially offset by cost reductions implemented during 2011. Gross profit as a percentage of revenue
declined to 58.8% for the year ended December 31, 2011 compared to 60.4% for the year ended December 31, 2010 due to the addition of the lower margin Biotel business.
Goodwill Impairment.
The Company incurred a charge of $46.0 million to reduce the carrying value of goodwill associated with the
patient
services unit. The impairment was driven by a suppressed market price which the Company believes is a result of current market conditions as well as market reaction to the ongoing Department of
Justice inquiry. This charge had no effect on the Company's operations, cash balances or cash flows.
General and Administrative Expense.
General and administrative expense was $35.0 million for the year ended December 31, 2011
compared
to $34.7 million for the year ended December 31, 2010. The increase of $0.3 million, or 1.0%, was due primarily to the inclusion of Biotel expenses of $3.0 million
partially offset by decreases in outside services of $1.5 million, and $1.2 million of other expenses. As a percent of total revenues, general and administrative expense was 29.4% for
the year ended December 31, 2011 compared to 28.9% for the year ended December 31, 2010.
Sales and Marketing Expense.
Sales and marketing expense was $27.8 million for the year ended December 31, 2011 compared to
$29.3 million for the year ended December 31, 2010. The decrease of $1.5 million, or 5.2%, was primarily related to a $1.2 million decrease in outside services related to
training and the contract sales organization and $0.3 million of other expenses. As a percentage of total revenues, sales and marketing expense was 23.4% for the year ended December 31,
2011 compared to 24.5% for the year ended December 31, 2010.
Bad Debt Expense.
Bad debt expense was $12.1 million for the year ended December 31, 2011 compared to $18.6 million for
the year
ended December 31, 2010. The decrease of $6.5 million, or 35.0%, was primarily a result of improved cash collections due to process improvements during 2011 and lower patient services
revenue. The bad debt expense recorded was based on an evaluation of historical collection experience and a review of outstanding accounts receivable, by age, by payor class. As a percentage of total
revenues, bad debt expense was 10.1% for the year ended December 31, 2011 compared to 15.5% for the year ended December 31, 2010.
Research and Development Expense.
Research and development expense was $5.7 million for the year ended December 31, 2011
compared to
$4.9 million for the year ended December 31, 2010. The increase of $0.8 million, or 16.4%, was largely due to costs incurred in the development of our next generation
MCOT device, C5, which was launched in December 2011 as well as the inclusion of expenses related to the acquisition of Biotel. As a percent of total revenue, research and development
expense was 4.8% for the year ended December 31, 2011 compared to 4.1% for the year ended December 31, 2010.
Integration, Restructuring and Other Charges.
The Company incurred integration, restructuring and other charges of $4.7 million
for the year
ended December 31, 2011. Restructuring and integration costs of $1.0 million were related to severances and other costs largely associated with the acquisition of Biotel. Other charges
incurred were for legal fees of $1.4 million related to the settlement of the class action lawsuit, $1.1 million for professional services related to strategic initiatives,
$1.0 million related to other ongoing litigation and miscellaneous charges of $0.2 million. Integration, restructuring and other charges were 3.9% of total revenues for the year ended
December 31, 2011.
Integration,
restructuring and other charges were $4.7 million for the year ended December 31, 2010. The restructuring costs related to the 2010 restructuring plan were
$2.1 million of severance and employee related costs as well as $1.4 million of other charges. The 2010 restructuring plan included the consolidation of the Company's sales and service
organizations, the closure of the Company's event
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monitoring
facility in Georgia and consolidation with its monitoring facilities in Pennsylvania and Minnesota, and an overall reduction of administrative costs company-wide. Additionally,
the Company incurred other charges of $1.2 million for the year ended December 31, 2010, including legal costs related to the Company's defense of the class-action and Biotel lawsuits.
Integration, restructuring and other charges were 3.9% of total revenues for the year ended December 31, 2010.
Other Income.
Net interest income was $0.1 million for the years ended December 31, 2011 and 2010. The Company had additional
interest
income and realized gains on available-for-sale investments, all of which were primarily offset by amortization of bond premiums during 2011.
Income Taxes.
The Company's effective tax rate was (0.40)% for the year ended December 31, 2011 and was (1.34)% for the year ended
December 31, 2010. The tax expense resulted from certain state taxes that are based on gross receipts rather than income. Additionally, the Company recognized tax expense related to the
reconciliation of its prior year provision to tax return filed during 2011 and 2010.
Net Loss.
The Company incurred a net loss of $61.4 million for the year ended December 31, 2011 compared to a net loss of
$19.9 million for the year ended December 31, 2010.
As of December 31, 2012, our principal source of liquidity was cash of $18.3 million and net accounts receivable of
$20.3 million. In addition, the Company entered into a credit agreement in August 2012 providing the Company with access to borrowings of up to $15.0 million. As of December 31,
2012, the Company did not have an outstanding balance on the credit agreement. The Company had working capital of $24.9 million as of December 31, 2012. We believe that our existing cash
and cash equivalents balances will be sufficient to meet our anticipated cash requirements for the foreseeable future.
The
Company generated $5.7 million of cash from operations for the year ended December 31, 2012, primarily through revenue and improved cash collection efforts. Cash was
used primarily to fund the Company's net working capital requirements of $6.1 million. Additionally, the Company had $13.1 million of non-cash items related to depreciation,
amortization and stock compensation expense during 2012.
The
Company used $6.4 million in cash for investments for the year ended December 31, 2012. This was primarily driven by the use of $6.0 million for the investment
in medical devices and other capital expenditures for use in its ongoing operations, $22.4 million net of cash of $1.1 million for the purchase of Cardiocore, and $5.8 million for
the purchase of ECG Scanning for the year ended December 31, 2012. In addition, the Company received $39.6 million from the maturity and sale of certain of its short term investments,
offset by $11.9 million used in the purchase of available-for-sale securities. As of December 31, 2012 the Company converted all
available-for-sale securities to cash.
If
the Company determines that it needs to raise additional capital, such capital may not be available on reasonable terms, or at all. If the Company raises additional funds by issuing
equity securities, its existing stockholders' ownership will be diluted. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment
obligations as well as covenants and specific financial ratios that may restrict its ability to operate the business.
41
Table of Contents
Contractual Obligations and Commitments
The following table describes our long-term contractual obligations and commitments as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
Payments due by period
|
|
Contractual obligations
|
|
Total
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
Beyond
|
|
Operating lease obligations
|
|
|
9,300
|
|
|
3,384
|
|
|
1,803
|
|
|
1,350
|
|
|
1,012
|
|
|
857
|
|
|
894
|
|
As
of December 31, 2012, the Company is bound under facility leases and several office equipment leases that are included in the table above. From time to time, we may enter into
contracts or purchase orders with third parties under which we may be required to make payments. Our payment obligations under certain agreements will depend on, among other things, the progress of
our development programs. Therefore, we are unable at this time to estimate with certainty the potential future costs we will incur under these agreements or purchase orders.
Recent Accounting Pronouncements
In September 2011, the FASB issued ASU 2011-08,
IntangiblesGoodwill and Other (Topic
350): Testing Goodwill for Impairment.
The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
2011, with early adoption permitted. The new guidance allows an entity the option to first assess qualitative factors to determine whether existence of events or circumstances lead to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment leads to the determination that the fair value of the reporting
unit is not less than the carrying value, then performing a two-step impairment test is no longer necessary. The new guidance did not have a material impact on our results of operations,
cash flows, or financial position.
In
July 2012, the FASB issued ASU 2012-02,
IntangiblesGoodwill and Other: Testing Indefinite-Lived Intangible Assets for
Impairment
. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The new guidance allows an entity
the option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is
impaired. If the qualitative assessment leads to the determination that is more likely than not that the indefinite-lived intangible asset is impaired, then the entity is required to determine the
fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The Company does not expect the amendment to have
a material impact on its results of operations, cash flows, or financial position.
Off-Balance Sheet Arrangements
As of December 31, 2012 and 2011, we did not have any relationships with unconsolidated entities or financial partnerships, such
as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders
CardioNet, Inc.
We
have audited the accompanying consolidated balance sheets of CardioNet, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations and
comprehensive income (loss), cash flows, and shareholders' equity for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule
listed at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CardioNet, Inc. at December 31,
2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CardioNet, Inc.'s internal control over financial
reporting as of December 31, 2012, based on criteria established in
"Internal ControlIntegrated Framework"
issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2013 expressed an unqualified opinion thereon.
Philadelphia,
Pennsylvania
February 22, 2013
43
Table of Contents
CARDIONET, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts.)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,298
|
|
$
|
18,531
|
|
Short-term available-for-sale investments
|
|
|
|
|
|
27,953
|
|
Accounts receivablepatient services, net of allowance for doubtful accounts of $7,532 and $9,889 at December 31, 2012 and 2011,
respectively
|
|
|
13,792
|
|
|
21,028
|
|
Other accounts receivable, net of allowance for doubtful accounts of $85 and $0 at December 31, 2012 and 2011, respectively
|
|
|
6,515
|
|
|
1,564
|
|
Inventory
|
|
|
2,894
|
|
|
2,009
|
|
Prepaid expenses and other current assets
|
|
|
1,923
|
|
|
1,511
|
|
|
|
|
|
|
|
Total current assets
|
|
|
43,422
|
|
|
72,596
|
|
Property and equipment, net
|
|
|
19,851
|
|
|
15,041
|
|
Intangible assets, net
|
|
|
9,664
|
|
|
2,545
|
|
Goodwill
|
|
|
16,446
|
|
|
3,363
|
|
Other assets
|
|
|
627
|
|
|
1,430
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
90,010
|
|
$
|
94,975
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,349
|
|
$
|
4,094
|
|
Accrued expenses
|
|
|
9,946
|
|
|
10,453
|
|
Deferred revenue
|
|
|
2,195
|
|
|
872
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,490
|
|
|
15,419
|
|
Deferred tax liability
|
|
|
866
|
|
|
705
|
|
Deferred rent
|
|
|
656
|
|
|
854
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
20,012
|
|
|
16,978
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
Common stock$.001 par value as of December 31, 2012 and 2011; 200,000,000 shares authorized as of December 31, 2012 and 2011; 25,189,340
and 24,534,601 shares issued and outstanding at December 31, 2012 and 2011, respectively
|
|
|
25
|
|
|
25
|
|
Paid-in capital
|
|
|
256,448
|
|
|
252,261
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
(16
|
)
|
Accumulated deficit
|
|
|
(186,475
|
)
|
|
(174,273
|
)
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
69,998
|
|
|
77,997
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
90,010
|
|
$
|
94,975
|
|
|
|
|
|
|
|
See accompanying notes.
44
Table of Contents
CARDIONET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts.)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Patient services
|
|
$
|
93,640
|
|
$
|
106,853
|
|
$
|
119,924
|
|
Research services
|
|
|
8,333
|
|
|
1,079
|
|
|
|
|
Product
|
|
|
9,521
|
|
|
11,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
111,494
|
|
|
119,022
|
|
|
119,924
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
Patient services
|
|
|
36,793
|
|
|
42,258
|
|
|
47,492
|
|
Research services
|
|
|
3,726
|
|
|
571
|
|
|
|
|
Product
|
|
|
5,074
|
|
|
6,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues:
|
|
|
45,593
|
|
|
49,076
|
|
|
47,492
|
|
Gross profit
|
|
|
65,901
|
|
|
69,946
|
|
|
72,432
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
32,644
|
|
|
35,011
|
|
|
34,657
|
|
Sales and marketing
|
|
|
25,604
|
|
|
27,821
|
|
|
29,338
|
|
Bad debt expense
|
|
|
11,912
|
|
|
12,080
|
|
|
18,578
|
|
Research and development
|
|
|
4,664
|
|
|
5,698
|
|
|
4,897
|
|
Integration, restructuring and other charges
|
|
|
4,236
|
|
|
4,659
|
|
|
4,654
|
|
Goodwill impairment
|
|
|
|
|
|
45,999
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
79,060
|
|
|
131,268
|
|
|
92,124
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(13,159
|
)
|
|
(61,322
|
)
|
|
(19,692
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
351
|
|
|
144
|
|
|
97
|
|
Interest expense
|
|
|
(299
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
52
|
|
|
144
|
|
|
94
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(13,107
|
)
|
|
(61,178
|
)
|
|
(19,598
|
)
|
Benefit (provision) for income taxes
|
|
|
905
|
|
|
(244
|
)
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,202
|
)
|
$
|
(61,422
|
)
|
$
|
(19,860
|
)
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.49
|
)
|
$
|
(2.51
|
)
|
$
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
24,109,085
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses) on securities:
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains/(losses) arising during the period
|
|
|
16
|
|
|
(24
|
)
|
|
8
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(12,186
|
)
|
$
|
(61,446
|
)
|
$
|
(19,852
|
)
|
|
|
|
|
|
|
|
|
See accompanying notes.
45
Table of Contents
CARDIONET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts.)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,202
|
)
|
$
|
(61,422
|
)
|
$
|
(19,860
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
11,912
|
|
|
12,080
|
|
|
18,578
|
|
Depreciation
|
|
|
8,037
|
|
|
10,913
|
|
|
11,696
|
|
Loss on the disposal of property & equipment
|
|
|
|
|
|
|
|
|
807
|
|
Decrease in deferred rent
|
|
|
(198
|
)
|
|
(303
|
)
|
|
(340
|
)
|
Deferred income tax (benefit) expense
|
|
|
(1,033
|
)
|
|
13
|
|
|
|
|
Stock-based compensation
|
|
|
3,747
|
|
|
4,006
|
|
|
3,945
|
|
Amortization of intangibles
|
|
|
1,341
|
|
|
1,219
|
|
|
375
|
|
Amortization of investment premium
|
|
|
268
|
|
|
561
|
|
|
421
|
|
Goodwill impairment
|
|
|
|
|
|
45,999
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,635
|
)
|
|
(6,653
|
)
|
|
(3,062
|
)
|
Inventory
|
|
|
(885
|
)
|
|
(548
|
)
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(176
|
)
|
|
1,575
|
|
|
|
|
Other assets
|
|
|
867
|
|
|
2,086
|
|
|
(2,043
|
)
|
Accounts payable
|
|
|
552
|
|
|
(3,033
|
)
|
|
(1,182
|
)
|
Accrued and other liabilities
|
|
|
(2,852
|
)
|
|
(1,463
|
)
|
|
1,027
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,743
|
|
|
5,030
|
|
|
10,362
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(28,155
|
)
|
|
|
|
|
(9,852
|
)
|
Purchases of property and equipment
|
|
|
(5,962
|
)
|
|
(3,954
|
)
|
|
(5,247
|
)
|
Purchases of short-term available-for-sale investments
|
|
|
(11,935
|
)
|
|
(49,657
|
)
|
|
(36,942
|
)
|
Sale or maturity of short-term available-for-sale investments
|
|
|
39,636
|
|
|
47,898
|
|
|
9,750
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,416
|
)
|
|
(5,713
|
)
|
|
(42,291
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
10
|
|
Proceeds from the exercise of employee stock options and employee stock purchase plan contributions
|
|
|
440
|
|
|
509
|
|
|
1,472
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
440
|
|
|
509
|
|
|
1,482
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(233
|
)
|
|
(174
|
)
|
|
(30,447
|
)
|
Cash and cash equivalentsbeginning of period
|
|
|
18,531
|
|
|
18,705
|
|
|
49,152
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsend of period
|
|
$
|
18,298
|
|
$
|
18,531
|
|
$
|
18,705
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
295
|
|
$
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
135
|
|
$
|
171
|
|
$
|
692
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
46
Table of Contents
CARDIONET, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
(In thousands, except share amounts.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
Common Stock
|
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
|
|
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Shareholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Balance December 31, 2009
|
|
|
23,965,405
|
|
$
|
24
|
|
$
|
242,320
|
|
$
|
|
|
$
|
(92,991
|
)
|
$
|
149,353
|
|
Issuance/vesting of common stock
|
|
|
22,083
|
|
|
|
|
|
1,422
|
|
|
|
|
|
|
|
|
1,422
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
263,682
|
|
|
|
|
|
1,472
|
|
|
|
|
|
|
|
|
1,472
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
2,533
|
|
|
|
|
|
|
|
|
2,533
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,860
|
)
|
|
(19,860
|
)
|
Changes in unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
|
24,251,170
|
|
|
24
|
|
|
247,747
|
|
|
8
|
|
|
(112,851
|
)
|
|
134,928
|
|
Issuance/vesting of common stock
|
|
|
112,824
|
|
|
1
|
|
|
1,593
|
|
|
|
|
|
|
|
|
1,594
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
170,607
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
|
515
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
2,406
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,422
|
)
|
|
(61,422
|
)
|
Changes in unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2011
|
|
|
24,534,601
|
|
|
25
|
|
|
252,261
|
|
|
(16
|
)
|
|
(174,273
|
)
|
|
77,997
|
|
Issuance/vesting of common stock
|
|
|
459,861
|
|
|
|
|
|
1,603
|
|
|
|
|
|
|
|
|
1,603
|
|
Exercise of stock options and purchase of shares related to the employee stock purchase plan
|
|
|
194,878
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
440
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
2,144
|
|
|
|
|
|
|
|
|
2,144
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,202
|
)
|
|
(12,202
|
)
|
Changes in unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
|
25,189,340
|
|
$
|
25
|
|
$
|
256,448
|
|
$
|
|
|
$
|
(186,475
|
)
|
$
|
69,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
47
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2012, 2011 and 2010
(In thousands,
except share and per share amounts.)
1. Organization and Description of Business
CardioNet, Inc. (the "Company") provides cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory services. Since the Company
became focused on cardiac monitoring in 1999, the Company has developed a proprietary integrated patient management platform that incorporates a wireless data transmission network, Food and Drug
Administration (FDA) cleared algorithms and medical devices, and 24-hour digital monitoring service centers.
The
Company operates under three segments: patient services, product, and research services. Prior to 2012, the company operated under two segments: patient services and product. The
patient services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through its core Mobile Cardiac Outpatient
Telemetry ("MCOT"), event and Holter services in a healthcare setting. The product business segment focuses on the development, manufacturing, testing and marketing of
medical devices to medical companies, clinics and hospitals. The Company's research services segment focuses on providing cardiac safety monitoring services for drug and medical treatment trials in a
research environment.
In
February 2012, the Company completed the acquisition of ECG Scanning & Medical Services, Inc. ("ECG Scanning"). ECG Scanning is engaged in providing cardiac monitoring
services to general practitioners, internal medicine specialists, cardiologists and hospital cardiac care departments. The acquisition gives the Company access to established customer relationships
and the ability to diversify its product and service offerings.
In
August 2012, the Company completed the acquisition of Cardiocore Lab, Inc. ("Cardiocore"). Cardiocore is engaged in central core laboratory services that provide cardiac
monitoring for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical companies and contract research organizations. The acquisition gives the Company access to industry
expertise, an established operating structure and a substantial footprint in the core lab industry.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that
management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
48
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale
investments, accounts receivable, other current assets, accounts payable, deferred revenue and other current liabilities. The carrying value of these financial instruments approximates their fair
value because of their short-term nature. The fair value of financial instruments is defined as the amount at which the instrument could be exchanged in a current transaction between
willing parties.
Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash
equivalents are defined as liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have insignificant
interest rate risk.
Marketable securities that do not meet the definition of cash and cash equivalents are classified as
available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains
and losses reported in comprehensive income (loss). We classify securities as current or non-current assets on the consolidated balance sheet based on maturity dates. The amortized cost of
debt securities is adjusted for amortization of premiums and accretions of discounts to maturity. Amortization of debt premiums and accretion of debt discounts are recorded in other income and
expense. Realized gains and losses, and declines in value, that are considered to be other-than-temporary, are recorded in other income and expense. The cost of securities sold
is based on specific identification.
Accounts receivable related to the patient services segment are recorded at the time revenue is recognized, net of contractual
allowances, and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been
provided and billed. The Company records bad debt expense based on the aging of the receivable using historical Company-specific data. The percentages and amounts used to record bad debt expense and
the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections, and the aging of specific receivables. Because of continuing
changes in the health care industry and third party reimbursement, it is possible that the Company's estimates of collectability could change, which could have a material impact on the Company's
operations and cash flows.
Accounts
receivable related to the product and research services segments are recorded at the time revenue is recognized, or when the services or products are billable, net of discounts.
The Company
estimates allowance for doubtful accounts on a specific account basis, and considers several factors in its analysis including customer specific information and aging of the account.
49
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The
Company writes off receivables when the likelihood for collection is remote, the receivables have been fully reserved, and when the Company believes collection efforts have been
fully exhausted and it does not intend to devote additional resources in attempting to collect. The Company performs write-offs on a quarterly basis. In the patient services segment, the
Company wrote off $14,184 and $13,970 of receivables for the years ended December 31, 2012 and 2011, respectively. The impact was a reduction of gross receivables and a reduction in the
allowance for doubtful accounts. Additionally, the Company recorded bad debt expense of $11,912, $12,080, and $18,578 for the years ended December 31, 2012, 2011 and 2010, respectively. Based
on collection experience, unfavorable adjustments of $6,343 and $2,074 were made to accounts receivable in 2012 and 2011, respectively, related to prior years accounts receivable. There were no
write-offs in the product and research services segments.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash
equivalents, short-term available-for-sale investments and accounts receivable. The Company maintains its cash and cash equivalents with high quality financial
institutions to mitigate this risk. The Company has established guidelines to limit exposure to credit risk by placing investments with high quality financial institutions, diversifying the Company's
investment portfolio and placing investments with maturities that maintain safety and liquidity. The Company performs ongoing credit evaluations of its customers and generally does not require
collateral. The Company records an allowance for doubtful accounts in accordance with the procedures described above. Past-due amounts are written off against the allowance for doubtful
accounts when collections are believed to be unlikely and all collection efforts have ceased.
At
December 31, 2012, 2011 and 2010, one customer accounted for 20%, 19% and 18%, respectively, of the Company's net accounts receivable.
Inventory is valued at the lower of cost (using first-in, first-out cost method) or market (net realizable
value or replacement cost). Company management periodically reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded to reduce inventory to
the lower of cost or market.
Property and equipment is recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable
assets, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance
costs are charged to expense as incurred.
50
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The Company periodically evaluates the recoverability of the carrying value of its long-lived assets based on the criteria
established in Accounting Standards Codification (ASC) 360,
Property, Plant & Equipment
. The Company considers historical performance and
anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to
the operating performance of the business and the undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the expected future cash
flows is less than the assets' carrying value.
Goodwill is the excess of purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed
in a business combination. In accordance with
ASC 350, IntangiblesGoodwill and Other
, goodwill is reviewed for impairment annually, or when
events arise that could indicate that impairment exists. The provisions of ASC 350 require that the Company perform a two-step impairment test. In the first step, the Company compares the
fair value of its reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units,
then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units' goodwill. If the carrying value of the reporting units' goodwill exceeds
its implied fair value, an impairment loss equal to the difference is recorded.
For
the purpose of performing its goodwill impairment analysis in 2012, the Company considers its business to be comprised of three reporting units, patient services, products and
research services. The Company calculates the fair value of the reporting units utilizing the income and market approaches. The income approach is based on a discounted cash flow methodology that
includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require
significant judgment. The market approach utilizes the Company's market data. There are inherent uncertainties related to these factors and the judgment applied in the analysis. The Company believes
that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of its reporting units.
The Company recognizes approximately 80% of its revenue from patient monitoring services in its patient services segment, derived from
its MCOT, event, Holter and pacemaker services. The Company receives a significant portion of its revenue from third party commercial payors and governmental entities. It also receives
reimbursement directly from patients through co-pay, deductibles and self-pay arrangements.
Revenue
from the Medicare program is based on reimbursement rates set by CMS. Revenue from contracted commercial payors is recorded at the negotiated contractual rate. Revenue from
non-contracted commercial payors is recorded at net realizable value based on historical payment
51
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
patterns.
Adjustments to the estimated net realizable value, based on final settlement with the third party payors, are recorded upon settlement. If the Company does not have consistent historical
information regarding collectability from a given payor, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until service is performed. For the years ended
December 31, 2012, 2011 and 2010, revenue from Medicare as a percentage of the patient services segment's revenue was 37%, 33% and 35%, respectively.
Revenue
received from the sale of products, product repair and supplies is recognized when shipped, or as service is completed. Unearned amounts are appropriately deferred until service
is performed.
Research
services revenue includes revenue for research and core laboratory services. The Company's research services revenues are provided on a fee for services basis, and revenue is
recognized as the related services are performed. We also provide consulting services on a time and materials basis and recognize revenues as we perform the services. Our site support revenue,
consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us
a portion of our fee for these services upon contract execution as an upfront deposit, some of which is typically nonrefundable upon contract termination. Unearned revenues are deferred, and then
recognized as the services are performed.
For
arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management's best
estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.
We
record reimbursements received for out-of-pocket expenses, including freight, incurred as revenue in the accompanying consolidated statements of operations.
Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities.
Advertising costs are charged to expense as incurred. For the years ended December 31, 2012, 2011 and 2010, the Company incurred
advertising costs of $174, $218 and $823, respectively.
Research and development costs are charged to expense as incurred.
The Company computes net loss per share in accordance with ASC 260,
Earnings Per Share
.
Basic net loss per share is computed by dividing net loss per share available to common shareholders by the weighted average number of common shares outstanding for the period, and excludes the
effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the treasury stock or if converted methods, as applicable.
52
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
The
following summarizes the potential outstanding common stock of the Company as of the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
|
December 31,
2010
|
|
Employee stock purchase plan estimated share options outstanding
|
|
|
50,903
|
|
|
51,544
|
|
|
40,208
|
|
Common stock options and restricted stock units ("RSUs") outstanding
|
|
|
3,669,103
|
|
|
2,468,991
|
|
|
2,102,376
|
|
Common stock options available for grant
|
|
|
1,853,786
|
|
|
2,369,802
|
|
|
1,649,723
|
|
Common stock
|
|
|
25,189,340
|
|
|
24,534,601
|
|
|
24,251,170
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,763,132
|
|
|
29,424,938
|
|
|
28,043,477
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share is computed by dividing net loss by the weighted average number of fully vested common shares outstanding during the period. Diluted net loss per share is
computed by giving effect to all potential dilutive common shares, including stock options, and RSUs.
The
following table presents the calculation of historical basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(in thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,202
|
)
|
$
|
(61,422
|
)
|
$
|
(19,860
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingBasic
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
24,109,085
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted net loss per share
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
24,109,085
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.49
|
)
|
$
|
(2.51
|
)
|
$
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
ASC 718,
CompensationStock Compensation
, addresses the accounting for
share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments.
ASC 718 requires that an entity measures the cost of equity-based service awards based on the grant-date fair value of the award and recognizes the cost of such awards over the period
during which the employee is required to provide service in exchange for the award (the vesting period). ASC 718 requires that an entity measures the cost of liability-based service awards based on
current fair value that is re-measured subsequently at
53
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
each
reporting date through the settlement date. The Company accounts for equity awards issued to non-employees in accordance with ASC 505-50,
Equity-Based Payments to Non-Employees
.
The Company accounts for income taxes under the liability method, as described in ASC 740,
Income
Taxes
. Deferred income taxes are recognized for the tax consequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities.
A valuation allowance for net deferred tax assets is provided unless realizability is judged by the Company to be more likely than not.
ASC 280,
Segment Reporting
, establishes standards for reporting information regarding
operating segments in annual financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the
chief operating decision-maker, or decision-making group in making decisions on how to allocate resources and assess performance.
Effective
in the third quarter 2012, with the acquisition of Cardiocore, the Company changed its reportable segments from two segments: Patient services and Product, to three segments:
Patient services, Product and Research services. The Patient services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through
its core Mobile Cardiac Outpatient Telemetry (MCOT), event and Holter services in a healthcare setting. The Product business segment focuses on the development, manufacturing, testing and marketing of
medical devices
to medical companies, clinics and hospitals. The Research services segment includes the Company's operations that focus on providing cardiac safety monitoring services in a research environment, which
includes certain equipment rental and product sales. In addition, the Company realigned the Product segment to exclude central core laboratory research operations previously reported in this segment
and repositioned these operations into the Research services segment. Disclosures for the twelve months ended December 31, 2012 and 2011 have been adjusted to reflect the change in reportable
segments.
In September 2011, the FASB issued ASU 2011-08,
IntangiblesGoodwill and Other (Topic
350): Testing Goodwill for Impairment.
The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15,
2011, with early adoption permitted. The new guidance allows an entity the option to first assess qualitative factors to determine whether existence of events or circumstances lead to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment leads to the determination that the fair value of the reporting
unit is not more likely than not less than the carrying value, then performing a two-step impairment test is no longer necessary. The amendments did not have a material impact on the
Company's results of operations, cash flows, or financial position.
54
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
2. Summary of Significant Accounting Policies (Continued)
In July 2012, the FASB issued ASU 2012-02,
IntangiblesGoodwill and Other: Testing Indefinite-Lived Intangible Assets for
Impairment
. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The new guidance allows an entity
the option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is
impaired. If the qualitative assessment leads to the determination that is more likely than not that the indefinite-lived intangible asset is impaired, then the entity is required to determine the
fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The Company does not expect the amendment to have
a material impact on its results of operations, cash flows, or financial position.
3. Business Combinations
On February 10, 2012, the Company entered into and closed on a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") with ECG Scanning and Medical
Services, Inc., an Ohio corporation ("ECG Scanning"). Upon the closing of the transaction, the Company acquired all of the issued and
outstanding capital stock, and ECG Scanning became a wholly-owned subsidiary of the Company. ECG Scanning is a provider of cardiac monitoring services in the United States. The Company paid an
aggregate cash purchase price of $5,800 at closing and up to an additional $600 in cash, with an estimated fair value of $570, upon the achievement of certain performance targets approximately one
year from the date of purchase. At December 31, 2012 the estimated fair value of the earn out is $0. The reduction of the liability was recognized in the Statement of Operations and
Comprehensive Income(Loss) in the Integration, restructuring, and other line. The acquisition has been included within the consolidated results of operations and financial condition from the date of
the acquisition. The acquisition gave the Company access to established customer relationships, and entry into additional regions and geographic locations.
55
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
3. Business Combinations (Continued)
The
purchase price allocation of the ECG Scanning acquisition purchase consideration of $6,370 was completed in the second quarter of 2012. The following table summarizes the purchase
price allocation:
|
|
|
|
|
Fair value of assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32
|
|
Accounts receivable
|
|
|
1,686
|
|
Prepaid expenses and other current assets
|
|
|
141
|
|
Property and equipment
|
|
|
2,655
|
|
Goodwill
|
|
|
1,577
|
|
Intangible assets
|
|
|
1,540
|
|
Other assets
|
|
|
64
|
|
|
|
|
|
Total assets acquired
|
|
|
7,695
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
508
|
|
Accrued expenses
|
|
|
283
|
|
Other liabilities
|
|
|
534
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,325
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,370
|
|
|
|
|
|
On
August 29, 2012, the Company entered into a definitive merger agreement with Cardicore Lab, Inc. ("Cardiocore"), a Delaware corporation. Upon the closing of the
transaction, Cardiocore became a wholly-owned subsidiary of the Company. The Company paid an aggregate purchase price of $23,500 in cash at closing. The acquisition has been included within the
consolidated results of operations and financial condition from the date of the acquisition.
Cardiocore
is engaged in central core laboratory services that provide cardiac monitoring for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical
companies and contract research organizations. The acquisition gives the Company access to industry expertise, an established operating structure and a substantial footprint in the core laboratory
industry.
56
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
3. Business Combinations (Continued)
The
purchase price allocation of the Cardiocore acquisition purchase consideration of $23,500 was completed in the fourth quarter of 2012. The following table summarizes the purchase
price allocation:
|
|
|
|
|
Fair value of assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,113
|
|
Accounts receivable
|
|
|
4,290
|
|
Prepaid expenses and other current assets
|
|
|
386
|
|
Property and equipment
|
|
|
4,230
|
|
Goodwill
|
|
|
11,506
|
|
Intangible assets
|
|
|
6,920
|
|
|
|
|
|
Total assets acquired
|
|
|
28,445
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
1,195
|
|
Accrued expenses
|
|
|
1,215
|
|
Deferred tax liabilities
|
|
|
935
|
|
Deferred revenue
|
|
|
1,600
|
|
|
|
|
|
Total liabilities assumed
|
|
|
4,945
|
|
|
|
|
|
Net assets acquired
|
|
$
|
23,500
|
|
|
|
|
|
The
unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the periods presented instead of
August 29, 2012. The pro forma information is based on historical results adjusted for the effect of purchase accounting and is not necessarily indicative of the results of operations of the
combined entity had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future results.
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Revenue
|
|
$
|
124,698
|
|
$
|
134,102
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(10,936
|
)
|
$
|
(62,712
|
)
|
|
|
|
|
|
|
Net Income per common share:
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.47
|
)
|
$
|
(2.56
|
)
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
Basic
|
|
|
24,933,656
|
|
|
24,425,318
|
|
|
|
|
|
|
|
4. Available-for-Sale Investments
As of December 31, 2012, the Company did not hold any investment securities. At December 31, 2011, the Company invested its excess funds in securities issued by the United
States government, corporations, banks, municipalities, financial holding companies and in money market funds comprised of these same types of securities. Cash and cash equivalents and
available-for-sale investments were
57
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
4. Available-for-Sale Investments (Continued)
placed
with high credit quality financial institutions. Additionally, the Company diversified its investment portfolio in order to maintain safety and liquidity.
The
investments at December 31, 2011 were recorded at fair value, based on quoted market prices, with unrealized gains and losses reported as a separate component of stockholders'
equity. These investments were classified as available-for-sale investments. At December 31, 2011, available-for-sale investments are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
20,012
|
|
$
|
1
|
|
$
|
(18
|
)
|
$
|
19,995
|
|
U.S. Treasury and agency debt securities
|
|
|
7,957
|
|
|
1
|
|
|
|
|
|
7,958
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,969
|
|
$
|
2
|
|
$
|
(18
|
)
|
$
|
27,953
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains and losses on available-for-sale investments are included as a component of shareholders' equity and comprehensive loss until realized from a
sale or other-than-temporary impairment. Realized gains and losses from the sale of securities are determined on a specific identification basis. Purchases and sales of
investments are recorded on their trade dates. The Company recorded realized gains for the years ended December 31, 2012, 2011 and 2010 of $16, $1 and $2, respectively. Dividend and interest
income are recognized when earned. Interest income from available-for-sale investments for the years ended December 31, 2012, 2011 and 2010 was $351, $144, and $97,
respectively, which were partially offset by amortization of investment premiums.
5. Fair Value Measurements
ASC 820 defines fair value as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment
used to estimate the fair value of assets and liabilities.
-
-
Level 1Valuations based on quoted prices for identical assets or liabilities in active markets at the
measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of
judgment. Our Level 1 assets consist of cash and money market funds, as well as U.S. Treasury and agency debt securities.
-
-
Level 2Valuations based on quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data, such as alternative pricing
sources with reasonable levels of price transparency. Our Level 2 assets consist of fixed income securities such as corporate debt securities including commercial paper and corporate bonds.
58
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
5. Fair Value Measurements (Continued)
-
-
Level 3Valuations based on inputs that are unobservable and significant to the overall fair value
measurement. We have not measured the fair value of any of our assets using Level 3 inputs.
The
fair value of the Company's financial assets subject to the disclosure requirements of ASC 820 at December 31, 2012 was $18,298 in cash, categorized as a Level 1
financial asset.
The
fair value of the Company's financial assets subject to the disclosure requirements of ASC 820 was determined using the following levels of inputs at December 31, 2011:
Fair Value Measurements at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,622
|
|
$
|
|
|
$
|
|
|
$
|
10,622
|
|
Money market funds
|
|
|
7,909
|
|
|
|
|
|
|
|
|
7,909
|
|
Corporate debt securities
|
|
|
|
|
|
19,995
|
|
|
|
|
|
19,995
|
|
U.S. Treasury and agency debt securities
|
|
|
7,958
|
|
|
|
|
|
|
|
|
7,958
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,489
|
|
$
|
19,995
|
|
$
|
|
|
$
|
46,484
|
|
|
|
|
|
|
|
|
|
|
|
6. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Raw materials and supplies
|
|
$
|
2,782
|
|
$
|
1,727
|
|
Finished goods
|
|
|
112
|
|
|
282
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
2,894
|
|
$
|
2,009
|
|
|
|
|
|
|
|
Inventories,
which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by
use of the first-in, first-out method.
59
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
7. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Estimated
Useful Life
(Years)
|
|
|
|
2012
|
|
2011
|
|
Cardiac monitoring devices, device parts and components
|
|
3 - 5
|
|
$
|
52,943
|
|
$
|
44,796
|
|
Computers and purchased software
|
|
3 - 5
|
|
|
12,088
|
|
|
10,635
|
|
Equipment, tools and molds
|
|
3
|
|
|
6,591
|
|
|
5,975
|
|
Furniture and fixtures
|
|
3
|
|
|
3,476
|
|
|
3,078
|
|
Leasehold improvements
|
|
Life of lease
|
|
|
5,828
|
|
|
4,911
|
|
|
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
|
|
|
80,926
|
|
|
69,395
|
|
Less accumulated depreciation
|
|
|
|
|
(61,075
|
)
|
|
(54,354
|
)
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
$
|
19,851
|
|
$
|
15,041
|
|
|
|
|
|
|
|
|
|
Depreciation
expense associated with property and equipment was $8,037, $10,913 and $11,696, for the years ended December 31, 2012, 2011 and 2010, respectively.
8. Goodwill and Intangible Assets
Goodwill was recognized at the time of the Cardiocore, ECG, Biotel and PDSHeart acquisitions. The carrying amount of goodwill as of December 31, 2012 and 2011 was $16,446 and
$3,363, respectively.
The
changes in the carrying amounts of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segment
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Total
|
|
Balance at December 31, 2011
|
|
$
|
|
|
$
|
|
|
$
|
3,363
|
|
$
|
3,363
|
|
Goodwill acquired during the year
|
|
|
1,577
|
|
|
11,506
|
|
|
|
|
|
13,083
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
1,577
|
|
$
|
11,506
|
|
$
|
3,363
|
|
$
|
16,446
|
|
|
|
|
|
|
|
|
|
|
|
60
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
8. Goodwill and Intangible Assets (Continued)
The
gross carrying amounts and accumulated amortization of the Company's intangible assets as of December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Estimated
Useful Life
(Years)
|
|
|
|
2012
|
|
2011
|
|
Customer relationships
|
|
6 - 10
|
|
$
|
3,651
|
|
$
|
2,551
|
|
Proprietary technology
|
|
5
|
|
|
4,000
|
|
|
800
|
|
Signed backlog
|
|
1 - 4
|
|
|
2,800
|
|
|
700
|
|
Unsigned backlog
|
|
4
|
|
|
600
|
|
|
|
|
Covenants not to compete
|
|
5
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
|
|
|
|
11,411
|
|
|
4,051
|
|
|
|
|
|
|
|
|
|
Customer relationships accumulated amortization
|
|
|
|
|
(1,894
|
)
|
|
(1,346
|
)
|
Proprietary technology accumulated amortization
|
|
|
|
|
(676
|
)
|
|
(160
|
)
|
Signed backlog accumulated amortization
|
|
|
|
|
(875
|
)
|
|
(700
|
)
|
Unsigned backlog accumulated amortization
|
|
|
|
|
(50
|
)
|
|
|
|
Covenants not to compete accumulated amortization
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
|
|
|
(3,547
|
)
|
|
(2,206
|
)
|
|
|
|
|
|
|
|
|
Indefinite-lived trade name
|
|
|
|
|
1,800
|
|
|
700
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
|
$
|
9,664
|
|
$
|
2,545
|
|
|
|
|
|
|
|
|
|
The
estimated amortization expense for the next five years is summarized as follows at December 31, 2012:
|
|
|
|
|
2013
|
|
|
2,340
|
|
2014
|
|
|
2,294
|
|
2015
|
|
|
1,937
|
|
2016
|
|
|
842
|
|
2017
|
|
|
138
|
|
|
|
|
|
Total
|
|
|
7,551
|
|
|
|
|
|
Amortization
expense for the years ending December 31, 2012, 2011 and 2010 was $1,341, $1,219 and $375, respectively.
At
December 31, 2012, the Company performed its required annual impairment test of goodwill. Based on this impairment test, the Company determined that none of the reporting
unit's goodwill was impaired.
61
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
8. Goodwill and Intangible Assets (Continued)
At December 31, 2011, the Company performed its required annual impairment test of goodwill. Based on this impairment test, the Company determined that its Product reporting
unit's goodwill was not impaired. However, as a result of the impairment test, the Company determined that impairment may exist in the patient services reporting unit. Therefore, the Company performed
Step 2 of the goodwill impairment analysis on its patient services reporting unit.
The
Step 2 analysis was performed by allocating the fair value of the patient services reporting unit to the identifiable assets, including unrecorded intangible assets and liabilities.
This allocation is performed as if the reporting unit had been acquired in a business combination, and assumes the purchase price was equivalent to the fair value determined in Step 1 of the goodwill
impairment test. The residual fair value of the reporting unit after allocation is the implied fair value of goodwill. This value is then compared to the carrying value of the reporting unit's
goodwill. If the implied fair value of goodwill is less than the carrying value, impairment exists and a charge is recorded in the amount of the difference. As a result of the Company's analysis, an
impairment charge of $45,999 was recorded for the year ended December 31, 2011 related to the patient services reporting unit.
9. Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Accrued purchases
|
|
$
|
197
|
|
$
|
461
|
|
Accrued compensation
|
|
|
6,382
|
|
|
6,583
|
|
Accrued professional fees
|
|
|
544
|
|
|
1,667
|
|
Accrued 2012 restructuring costs
|
|
|
914
|
|
|
|
|
Other
|
|
|
1,909
|
|
|
1,742
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,946
|
|
$
|
10,453
|
|
|
|
|
|
|
|
10. Integration, Restructuring and Other Charges
2012 Integration, Restructuring and Other Charges
For the year ended December 31, 2012, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
Legal fees
|
|
$
|
1,780
|
|
Severance and employee related costs
|
|
|
1,490
|
|
Professional fees
|
|
|
778
|
|
Other charges
|
|
|
188
|
|
|
|
|
|
Total
|
|
$
|
4,236
|
|
|
|
|
|
62
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
10. Integration, Restructuring and Other Charges (Continued)
The
Company accounts for expenses associated with exit or disposal activities in accordance with ASC 420,
Exit or Disposal Cost
Obligations,
and records the expenses in "Integration, restructuring and other charges" in its statement of operations, and records the related accrual in the "Accrued
expenses" line of its balance sheet.
In
2012, integration, restructuring and other charges included legal fees of $1,780 related to ongoing litigation and transaction due diligence, $778 related to professional services
associated with transaction due diligence, $1,490 related to severance and other employee related costs and $188 related to other restructuring charges.
2011 Integration, Restructuring and Other Charges
For the year ended December 31, 2011, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
Legal fees
|
|
$
|
2,835
|
|
Biotel integration
|
|
|
1,023
|
|
Professional fees
|
|
|
639
|
|
Other charges
|
|
|
162
|
|
|
|
|
|
Total
|
|
$
|
4,659
|
|
|
|
|
|
In
2011, integration, restructuring and other charges included legal fees of $2,835 related to ongoing litigation, $639 related to professional services associated with transaction due
diligence and $162 related to severance and other employee related costs.
Restructuring
and integration costs of $1,023 were related to severances and other employee related costs associated with the acquisition of Biotel. The restructuring activities related
to Biotel were substantially complete as of December 31, 2011.
2010 Integration, Restructuring and Other Charges
For the year ended December 31, 2010, the Company incurred expenses related to restructuring, integration and other activities.
A summary of these expenses is as follows:
|
|
|
|
|
2010 restructuring
|
|
$
|
3,523
|
|
Other charges
|
|
|
1,131
|
|
|
|
|
|
Total
|
|
$
|
4,654
|
|
|
|
|
|
During
the first quarter of 2010, the Company undertook an initiative to streamline its sales and service organizations and reduce support costs company-wide. It also
initiated plans to close its event monitoring facility in Georgia and consolidate it with the Company's monitoring facilities in Pennsylvania and Minnesota. The Company realized cost efficiencies by
undertaking these initiatives.
63
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
10. Integration, Restructuring and Other Charges (Continued)
The
restructuring plan involved the elimination of approximately 100 positions. The restructuring activities were substantially complete as of December 31, 2010. No additional
charges were incurred after December 31, 2010 related to this restructuring plan, and all remaining accruals related to the plan were paid in 2011.
The
Company incurred other charges of $1,131 for the year ended December 31, 2010, including legal costs related to the Company's defense of class-action and Biotel lawsuits.
11. Shareholders' Equity
As of December 31, 2012 and 2011, the Company was authorized to issue 200,000,000 shares of common stock. As of
December 31, 2012 and 2011, the Company had 25,189,340 and 24,534,601 shares outstanding, respectively.
The Company maintains an unregistered blank check preferred stock class. As of December 31, 2012 and 2011, there are no shares
authorized and outstanding.
The Company's 2008 Equity Incentive Plan (the 2008 Option Plan) became effective on March 18, 2008. The Plan permits the
Company's Board of Directors to grant incentive stock options to employees of the Company and non-qualified stock options, restricted stock, performance stock and other stock-based
incentive awards to officers, directors, employees and consultants of the Company. On that date, the Company began granting options to purchase shares of common stock to employees, executives,
directors and consultants. Under the terms of the 2008 Option Plan, all available shares in the 2003 Option Plan's share reserve automatically roll into the 2008 Option Plan. Any cancellations or
forfeitures of granted options under the 2003 Option Plan also automatically roll into the 2008 Option Plan. Beginning on January 1, 2009, and each year thereafter, the number of options
available to be granted under the plan will increase by the lesser of 4% of the total number of common shares outstanding or 1,500,000 shares.
The
restrictions on restricted stock units (RSU's) issued under the plan lapse as follows: one third on the date of grant, one third on the first anniversary of the date of grant, and
one third on the second anniversary of the date of grant. The restrictions on certain other restricted stock units issued under the plan lapse in full on the third anniversary of the date of grant.
Options granted to certain officers of the Company in combination with restricted stock units, described above, under the Plan vest in three equal installments beginning on the third anniversary from
the date of grant.
Options
granted under the 2008 Option Plan have exercise prices not less than the fair market value at the date of grant and have an expiration date of no greater than ten years from the
date of
64
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
grant.
There is no vesting schedule provided in the 2008 Option Plan, and vesting is determined by the Board of Directors on the date of grant. However, the Company's practice is to follow a four year
vesting schedule such that 25% of the granted options vest on the anniversary date of grant, and the remaining options granted vest ratably over 36 months thereafter. No options have been
granted with vesting schedules that differ from Company practice.
The Company's 2008 Non-employee Directors' Stock Option Plan (the Directors' Plan) became effective March 18, 2008.
Beginning on that date, all directors elected for the first time to the Board of Directors receive a fixed number of options. On the date of the annual meeting, and when directors are elected to a
committee or a chair position of a committee, they will also receive a grant equal to a fixed number of options per the Directors' Plan. Options granted under the Directors' Plan have exercise prices
not less than the fair market value at the date of grant, and have an expiration date of no greater than ten years from the date of grant. Initial and committee chair grants vest 33% on the first
anniversary date of grant, and the balance vests ratably over 24 months. Annual grants vest ratably over 12 months from the date of grant.
As of March 18, 2008 the Company no longer granted options to purchase shares of common stock to employees, executives,
directors and consultants under the Company's 2003 Equity Incentive Plan (the 2003 Option Plan). Options granted under the 2003 Option Plan have exercise prices not less than the fair market value at
date of grant for incentive stock options and not less than 85% of the fair market value at the date of grant for non-statutory options. The options generally expire ten years from the
date of grant and generally vest 25% twelve months from the date of grant, and ratably over the next 36 months thereafter.
The
2003 Option Plan allows for employees to early exercise options on the first anniversary date of employment, regardless of the vested status of granted options. If an employee
terminates prior to fully vesting in options that have been early exercised, the Company repurchases the common stock associated with unvested options at the original exercise price.
65
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
Option
and RSU activity under all equity incentive plans is summarized as follows for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/RSU's Outstanding
|
|
|
|
Shares
Available
for Grant
|
|
Number
of Shares
|
|
Weighted
Average
Exercise Price
|
|
BalanceDecember 31, 2009
|
|
|
1,132,135
|
|
|
1,575,645
|
|
$
|
15.21
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,194,094
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,034,663
|
)
|
|
1,034,663
|
|
$
|
6.70
|
|
Cancelled/forfeited
|
|
|
358,157
|
|
|
(358,157
|
)
|
$
|
14.44
|
|
Exercised/vesting
|
|
|
|
|
|
(149,775
|
)
|
$
|
8.21
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2010
|
|
|
1,649,723
|
|
|
2,102,376
|
|
$
|
12.18
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,207,210
|
|
|
|
|
|
|
|
Granted
|
|
|
(724,333
|
)
|
|
724,333
|
|
$
|
4.67
|
|
Cancelled/forfeited
|
|
|
237,202
|
|
|
(237,202
|
)
|
$
|
15.10
|
|
Exercised/vesting
|
|
|
|
|
|
(120,516
|
)
|
$
|
7.78
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2011
|
|
|
2,369,802
|
|
|
2,468,991
|
|
$
|
9.43
|
|
|
|
|
|
|
|
|
|
Additional shares authorized for grant
|
|
|
1,216,611
|
|
|
|
|
|
|
|
Granted
|
|
|
(2,128,939
|
)
|
|
2,128,939
|
|
$
|
2.73
|
|
Cancelled/forfeited
|
|
|
396,312
|
|
|
(396,312
|
)
|
$
|
9.98
|
|
Exercised/vesting
|
|
|
|
|
|
(532,515
|
)
|
$
|
7.85
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2012
|
|
|
1,853,786
|
|
|
3,669,103
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
|
A
summary of total outstanding stock options as of December 31, 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Price
|
|
Number
Outstanding
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
Weighted-
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted-
Average
Remaining
Contractual
Life (in years)
|
|
Weighted-
Average
Exercise Price
|
|
$0.70 - $7.50
|
|
|
2,445,563
|
|
|
8.37
|
|
$
|
4.10
|
|
|
790,012
|
|
|
7.54
|
|
$
|
5.14
|
|
$7.51 - $15.00
|
|
|
86,641
|
|
|
5.93
|
|
$
|
9.58
|
|
|
76,407
|
|
|
5.74
|
|
$
|
9.69
|
|
$15.01 - $22.50
|
|
|
285,597
|
|
|
6.20
|
|
$
|
18.57
|
|
|
285,597
|
|
|
6.20
|
|
$
|
18.57
|
|
$22.51 - $31.18
|
|
|
83,300
|
|
|
5.64
|
|
$
|
29.94
|
|
|
83,300
|
|
|
5.64
|
|
$
|
29.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.70 - $31.18
|
|
|
2,901,101
|
|
|
8.00
|
|
$
|
6.43
|
|
|
1,235,316
|
|
|
6.99
|
|
$
|
10.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
In
addition, a summary of total outstanding RSU's as of December 31, 2012 is as follows:
|
|
|
|
|
Range of Grant Price
|
|
RSU's
Outstanding
|
|
$2.16 - $6.75
|
|
|
749,944
|
|
$6.76 - $7.75
|
|
|
3,000
|
|
$7.76 - $8.80
|
|
|
15,058
|
|
|
|
|
|
$2.16 - $8.80
|
|
|
768,002
|
|
|
|
|
|
The
table below summarizes certain additional information with respect to our options:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2012
|
|
2011
|
|
2010
|
|
Aggregate intrinsic value of options outstanding at year-end
|
|
$
|
46
|
|
$
|
17
|
|
$
|
141
|
|
Aggregate intrinsic value of options exercisable at year-end
|
|
|
13
|
|
|
17
|
|
|
87
|
|
Aggregate intrinsic value of options exercised during the year
|
|
|
2
|
|
|
7
|
|
|
151
|
|
As
of December 31, 2012, 2011 and 2010, the Company has reserved shares of common stock for issuance as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Exercise of options available and grants of awards under equity plans
|
|
|
5,522,889
|
|
|
4,838,793
|
|
|
3,752,099
|
|
The
Company's loss before income taxes for the years ended December 31, 2012, 2011 and 2010 was $3,747, $4,006 and $3,945 lower, respectively, as a result of stock- based
compensation expense incurred. For the year ended December 31, 2012, the impact of stock-based compensation expense was $(0.15) on the basic and diluted earnings per share. The impact of
stock-based compensation expense was $(0.16) on the basic and diluted earnings per share for both of the years ended December 31, 2011 and 2010. Stock-based compensation expense was recorded in
general and administrative expenses for the years ended 2012 and 2011.
Total
cash received from the exercise of stock options for the year ended December 31, 2012, 2011 and 2010 was $4, $11 and $665, respectively. The tax benefit was fully reserved
for through a tax valuation allowance.
67
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model
requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of the Company's stock and the expected
term of the award. We base our estimates of expected volatility on the historical volatility of our stock price. The expected term represents the period of time that stock-based awards granted are
expected to be outstanding. Other assumptions used in the Black-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free
interest rate for periods pertaining to the contractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. The Company has never paid, and
does not expect to pay, dividends in the foreseeable future.
The
fair value of the Company's stock-based awards was estimated at the date of grant using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Expected volatility
|
|
|
63.4
|
%
|
|
62.0
|
%
|
|
65.0
|
%
|
Expected term (in years)
|
|
|
6.31
|
|
|
6.25
|
|
|
6.25
|
|
Weighted-average risk-free interest rate
|
|
|
1.15
|
%
|
|
2.48
|
%
|
|
2.29
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Weighted-average grant date fair value per share
|
|
$
|
1.58
|
|
$
|
2.82
|
|
$
|
3.95
|
|
Based
on the Company's historical experience of options that cancel before becoming fully vested, the Company has assumed an annualized forfeiture rate of 15% for all options. Under the
true-up provision of ASC 718, the Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual
forfeiture rate is higher than estimated.
Total
compensation cost of options granted but not yet vested at December 31, 2012, 2011 and 2010 were approximately $3,433, $3,615 and $5,047, respectively. At
December 31, 2012, 2011 and 2010, the weighted average remaining periods over which the above amounts are expected to be recognized were 2.34 years, 2.62 years, and
3.09 years, respectively. At December 31, 2012, 1,853,786 shares remained available for future grant under the Plan.
68
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
A
summary of the status of the Company's unvested stock options as of the respective balance sheet dates, and changes during years, is presented below:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
(per share)
|
|
Unvested shares at December 31, 2011
|
|
|
1,541,470
|
|
$
|
5.03
|
|
Granted
|
|
|
2,128,939
|
|
$
|
2.01
|
|
Vested
|
|
|
(837,395
|
)
|
$
|
5.14
|
|
Cancelled/forfeited
|
|
|
(396,312
|
)
|
$
|
5.64
|
|
|
|
|
|
|
|
Unvested shares at December 31, 2012
|
|
|
2,436,702
|
|
$
|
2.62
|
|
|
|
|
|
|
|
On December 1, 2009, the Company accelerated the vesting of certain employees' unvested options that were deeply
out-of-the-money. The acceleration was done because the Company believed that there was no longer a compensation incentive tied to Company performance, given the
exercise price of the options that were accelerated. Consistent with ASC 718, the Company will continue to expense the accelerated options over the remaining service period. The Company does not have
a static policy threshold to use for determining whether an option is deeply
out-of-the-money. Rather, the Company believes that the determination should be made in light of current market conditions, probability of stock price recovery
within the remaining service period, and historical volatility of the Company's stock price. For the purposes of this option acceleration, the Company determined that options that were
out-of-the-money by 30% or more were deeply out-of-the-money. As a result of the option acceleration, approximately 309,000
previously unvested shares became fully vested on December 1, 2009. The Company incurred an expense associated with the options that were accelerated in the amount of $578, $984 and $1,269 for
the years ended December 31, 2012, 2011 and 2010, respectively, which have been recorded in the General and administrative line of the consolidated statement of operations and comprehensive
income(loss). The weighted average exercise price of the accelerated options is $19.87, and the average remaining service period is less than one year.
In July 2008, the Company made available an employee stock purchase plan in which substantially all of the Company's
full-time employees became eligible to participate effective March 18, 2008. Under the plan, employees may contribute through payroll deductions up to 15% of their compensation
toward the purchase of the Company's common stock, or $21, whichever is lower. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85%
of the fair market price on the day of purchase. Proceeds received from the issuance of shares are credited to stockholders' equity in the period that the shares are issued. Under the terms of the
plan, a total of 238,000 shares of common stock have been reserved for issuance to employees. On March 17, 2012 and September 17, 2012, 99,345 shares and 93,281 shares, respectively,
were purchased
69
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
11. Shareholders' Equity (Continued)
in
accordance with the Employee Stock Purchase Plan (ESPP). Net proceeds to the Company from the issuance of shares of common stock under the ESPP for the year ended December 31, 2012 were
$436. In January 2012, the number of shares available for grant was increased by 241,442, per the ESPP plan documents. At December 31, 2012, approximately 508,487 shares remain available for
purchase under the ESPP. For the years ended December 31, 2012, 2011 and 2010, the Company incurred ESPP expenses of $182, $201, and $202, respectively.
12. Income Taxes
The Company has deferred income tax assets totaling $52,385 at December 31, 2012, consisting primarily of federal and state net operating loss and credit carryforwards. Due to
uncertainty regarding the ultimate realization of these net operating loss and credit carryforwards and other deferred income tax assets, we have established a full valuation allowance on our deferred
tax assets and will recognize the benefits only as reassessment indicates the benefits are realizable. The determination of the required valuation allowance against net deferred tax assets was made
without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.
The
Company's income tax benefit for 2012 of $905 primarily relates to the tax effects of the acquisitions of ECG Scanning and Cardiocore, offset by state taxes based on gross receipts
or modified gross receipts calculations properly included as income taxes.
The
Company performed an analysis to determine the extent to which it can use its net operating loss carryforwards in future periods, subject to certain limitations imposed by the
Internal Revenue Code. The Company concluded that because of the Company's limited history of reporting a net profit, it cannot predict that the benefits of the net operating loss carryfowards will be
realized in future periods, and therefore the Company continues to provide a full valuation allowance for deferred tax assets. The Company will perform a similar analysis during 2013 to reassess the
estimated future realizability of net operating loss carryforwards.
70
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
12. Income Taxes (Continued)
Deferred
taxes result from temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax
purposes. The significant components of the Company's deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
37,384
|
|
$
|
32,574
|
|
Research & development and AMT credit carryforwards
|
|
|
4,530
|
|
|
4,578
|
|
Stock option grants
|
|
|
5,329
|
|
|
4,389
|
|
Allowance for doubtful accounts
|
|
|
2,932
|
|
|
3,896
|
|
Other, net
|
|
|
2,210
|
|
|
2,172
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
52,385
|
|
|
47,609
|
|
Less valuation allowance
|
|
|
(49,145
|
)
|
|
(47,142
|
)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,240
|
|
$
|
467
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(815
|
)
|
|
(197
|
)
|
Identified intangible assets
|
|
|
(2,404
|
)
|
|
(166
|
)
|
Indefinite lived intangible assets
|
|
|
(678
|
)
|
|
(269
|
)
|
Prepaid insurance
|
|
|
(21
|
)
|
|
(73
|
)
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,918
|
)
|
$
|
(705
|
)
|
|
|
|
|
|
|
Net deferred tax liability
|
|
|
(678
|
)
|
$
|
(238
|
)
|
|
|
|
|
|
|
Reconciliations
between expected income taxes computed at the federal rate of 35% for each of the years ended December 31, 2012, 2011 and 2010, and the provision (benefit) for
income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Income tax benefit at statutory rate
|
|
$
|
(4,587
|
)
|
$
|
(21,412
|
)
|
$
|
(6,855
|
)
|
State income tax benefit, net of federal benefit
|
|
|
(211
|
)
|
|
191
|
|
|
73
|
|
Stock-based compensation
|
|
|
397
|
|
|
493
|
|
|
478
|
|
Goodwill impairment
|
|
|
|
|
|
16,100
|
|
|
|
|
Other
|
|
|
200
|
|
|
(173
|
)
|
|
326
|
|
Increase in valuation allowance
|
|
|
3,296
|
|
|
5,045
|
|
|
6,240
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
$
|
(905
|
)
|
$
|
244
|
|
$
|
262
|
|
|
|
|
|
|
|
|
|
At
December 31, 2012, the Company had federal net operating loss carryforwards of approximately $95,806, to offset future federal taxable income expiring in various years through
2030. At December 31, 2012, the Company had state net operating loss carryforwards of $60,065, which expire in various years starting in 2013.
71
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
12. Income Taxes (Continued)
The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The
timing and manner in which the Company can utilize its net operating loss carryforward and future income tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding
the change in ownership of corporations. Such limitation may have an impact on the ultimate realization of the Company's carryforwards and future tax deductions. Section 382 of the Internal
Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize net operating losses if it experiences an "ownership change." In general terms, an ownership change may
result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual
limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by the Company at the time
of the change that are recognized in the five-year period after the change. Currently, the Company's loss carryforwards are limited under Section 382.
The
components of the Company's income tax (benefit) provision are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
State
|
|
|
128
|
|
|
231
|
|
|
|
|
|
|
|
Total current provision for income taxes
|
|
|
128
|
|
|
231
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
(996
|
)
|
|
|
|
State
|
|
|
(37
|
)
|
|
13
|
|
|
|
|
|
|
|
Total deferred (benefit) provision for income taxes
|
|
|
(1,033
|
)
|
|
13
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(905
|
)
|
$
|
244
|
|
|
|
|
|
|
|
The
U.S. Internal Revenue Service concluded its examination of the Company's U.S. federal tax returns for all years through 2010. Because of net operating losses, the Company's U.S.
federal tax returns for those years will remain subject to examination until the losses are utilized.
The
Company does not have a tax reserve recorded for tax contingencies. As of December 31, 2012 and 2011, the Company has not identified any uncertain tax positions and therefore,
it has no tax reserve recorded as of December 31, 2012 and 2011.
72
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
13. Commitments and Contingencies
The Company leases its principal administrative and service facilities as well as office equipment under non-cancelable
operating leases expiring at various dates through 2019. The terms of the leases are renewable at the end of the lease term. Payments made under operating leases are charged to operations on a
straight-line basis over the period of the lease. Differences between straight-line expense and cash payments are recognized in the deferred rent line of the balance sheet.
Rent expense was $2,946, $2,713 and $2,993 for the years ended December 31, 2012, 2011 and 2010, respectively.
Future
minimum lease payments under non-cancelable operating leases are summarized as follows at December 31, 2012:
|
|
|
|
|
2013
|
|
$
|
3,384
|
|
2014
|
|
|
1,803
|
|
2015
|
|
|
1,350
|
|
2016
|
|
|
1,012
|
|
2017
|
|
|
857
|
|
Thereafter
|
|
|
894
|
|
|
|
|
|
|
|
$
|
9,300
|
|
|
|
|
|
The Company has an agreement with Verizon whereby the Company has no fixed or minimum financial commitment. However, in the event the
Company fails to maintain an agreed upon number of active cardiac monitoring devices on the Verizon network, Verizon has the right to terminate this agreement.
14. Credit Agreement
On August 29, 2012, the Company entered into a Credit and Security Agreement ("Credit Agreement") with MidCap Financial, LLC to provide revolving loan borrowings with a
loan commitment of $15,000, and an option by the Company to increase to a maximum loan commitment of $30,000. Interest on borrowings under the Credit Agreement is based on the London Interbank Offered
Rate ("LIBOR") plus an applicable margin of 4.75%. An unused line fee of 0.50% per annum is payable on any unused line balance, determined as the total loan commitment of $15,000 minus the average
daily balance of the sum of the revolving loan borrowings outstanding during the preceding month. Furthermore, if the Company terminates the agreement at any point prior to the loan expiration date,
the Company will incur a loan termination fee of 1.00% of the loan commitment due immediately preceding the termination. The Credit Agreement is secured by the Company's personal property, inventory
and other assets and expires in August 2016. As of December 31, 2012, the Company did not have any outstanding balance on the credit agreement.
73
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
15. Employee Benefit Plan
The Company sponsors a 401(k) Retirement Savings Plan (the Plan) for all eligible employees who meet certain requirements. Participants may contribute, on a pre-tax basis, up to the
maximum allowable amount pursuant to Section 401(k) of the Internal Revenue Code. The Company is not required to contribute to the Plan. In May 2009, the Company adopted an amendment to the
Plan that allowed for an employer matching contribution of 100% of employee contributions, up to 3% of the employees' salary. For the years ended December 31, 2012, 2011 and 2010, the Company
contributed $0, $1,296 and $1,134, respectively. Employer contributions vest immediately.
16. Segment Information
The Company operates under three segments: patient services, product, and research services. Prior to 2012, the company operated under two segments: patient services and product. The
patient services business segment's principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through its core Mobile Cardiac Outpatient
Telemetry ("MCOT"), event and Holter services in a healthcare setting. The product business segment focuses on the development, manufacturing, testing and marketing of
medical devices to
medical companies, clinics and hospitals. The Company's research services focuses on providing cardiac safety monitoring services for drug and medical treatment trials in a research environment.
Overhead
expenses that can be identified with a segment have been included as deductions in determining pre-tax segment income. Any remaining expenses are included in Corporate and
Other. Also included in Corporate and Other are net financing expenses and other, which consist principally of interest expense and debt and other financing expenses less interest income, and
significant unusual and infrequently occurring items not allocated to a segment for purposes of reporting to the chief operating decision maker. Total assets are those assets that are utilized within
a specific segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Corporate
and Other
|
|
Consolidated
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
93,640
|
|
$
|
8,333
|
|
$
|
9,521
|
|
$
|
|
|
$
|
111,494
|
|
(Loss) income before income taxes
|
|
|
(5,752
|
)
|
|
962
|
|
|
1,483
|
|
|
(9,800
|
)
|
|
(13,107
|
)
|
Depreciation and amortization
|
|
|
7,953
|
|
|
860
|
|
|
565
|
|
|
|
|
|
9,378
|
|
Capital expenditures
|
|
|
4,199
|
|
|
1,079
|
|
|
684
|
|
|
|
|
|
5,962
|
|
Total assets
|
|
$
|
43,838
|
|
$
|
33,293
|
|
$
|
12,879
|
|
|
|
|
$
|
90,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient
Services
|
|
Research
Services
|
|
Product
|
|
Corporate
and Other
|
|
Consolidated
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
106,853
|
|
$
|
1,079
|
|
$
|
11,090
|
|
$
|
|
|
$
|
119,022
|
|
(Loss) income before income taxes
|
|
|
(48,637
|
)
|
|
106
|
|
|
(1,064
|
)
|
|
(11,583
|
)
|
|
(61,178
|
)
|
Depreciation and amortization
|
|
|
10,762
|
|
|
61
|
|
|
1,309
|
|
|
|
|
|
12,132
|
|
Capital expenditures
|
|
|
3,616
|
|
|
174
|
|
|
164
|
|
|
|
|
|
3,954
|
|
Total assets
|
|
$
|
82,451
|
|
$
|
1,018
|
|
$
|
11,506
|
|
|
|
|
|
94,975
|
|
74
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
17. Legal Proceedings
On June 12, 2012, CardioNet, Inc. (the "Company") settled the patent infringement action brought on September 25, 2009 by LifeWatch Services, Inc., and Card
Guard Scientific Survival, Ltd. ("Lifewatch"), the licensee and owner, respectively, of U.S. Patent Nos. 7,542,878 B2 ("the '878 Patent") and 5,730,143 ("the '143 Patent"), collectively
("Licensed Patents") against the Company's wholly owned subsidiary, Braemar Inc. ("Braemar") and one of its customers, eCardio Diagnostics, LLC ("eCardio"), in Federal District Court for
the Northern District of Illinois, File No. 09-CV-6001. In this matter, Lifewatch alleged that Braemar and eCardio had infringed the Licensed Patents. Pursuant to the
terms of the settlement agreement, the Company paid Lifewatch a lump sum of $250 for a fully paid-up license, release, and covenant not to sue under the Licensed Patents for Braemar
products. The covenant not to sue extends to Braemar's customers, including eCardio.
On
December 12, 2011 the Company announced that it had reached a preliminary agreement to settle the West Palm Beach Police Pension Fund putative class action litigation filed in
California Superior
Court, San Diego County, which asserted claims against the Company for violations of Sections 11, 12 and 15 of the Securities Act of 1933. On June 22, 2012, the court approved the
settlement of $7,250, of which, the Company paid $1,250 on March 31, 2012, and the remainder was covered by insurance.
On
May 8, 2012, CardioNet filed suit against The ScottCare Corporation and Ambucor Health Solutions, Inc. in the United States District Court for the Eastern District of
Pennsylvania (Civil Action No. 2:12-CV-2516-PBT) for patent infringement related to the use, offering for use, sale, and offering for sale of the ScottCare
TeleSentry Mobile Cardiac Telemetry device and monitoring services. On May 8, 2012, CardioNet also filed suit against Mednet Healthcare Technologies, Inc., MedTel 24, Inc.,
RhythmWatch LLC, and AMI Cardiac Monitoring, Inc., in the United States District Court for the Eastern District of Pennsylvania (Civil Action
No. 2:12-CV-2517-JS) for patent infringement related to the use, offering for use, sale, and offering for sale of the Heartrak External Cardiac Ambulatory
Telemetry device and monitoring services. The suits each allege that the defendants are infringing the following CardioNet patents: U.S. Patent Nos. 7,212,850, 7,907,996, 6,569,095, 7,587,237
and 7,941,207. CardioNet is seeking an injunction against each defendant, as well as monetary damages. Defendants Mednet HealthCare Technologies, Inc. and the ScottCare Corporation have
asserted counterclaims alleging the patents in suit are invalid and not infringed. Consistent with the accounting for contingent liabilities, no accrual has been recorded in the financial statements.
The Company is vigorously pursuing its claims and defending against the counterclaims.
18. Civil Investigative Demand
On August 25, 2011, the Company received a Civil Investigative Demand ("CID") issued by the U.S. Department of Justice, Western District of Washington. The CID states that it was
issued in the course of an investigation under the federal false claims act and seeks documents for the period January 1, 2007 through the date of the CID. The CID indicates that the
investigation concerns allegations that the Company may have used inappropriate diagnosis codes when submitting claims for payment to Medicare for its real-time, outpatient cardiac
monitoring services. The Company is cooperating with the government's request and is in the process of providing information in response to
75
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except share and per share amounts.)
18. Civil Investigative Demand (Continued)
the
CID. The Company is unable to predict what action, if any, might be taken in the future by the Department of Justice or other governmental authorities as a result of this investigation or what
impact, if any, the outcome of this matter might have on the Company's business, financial position or results of operations. The Company cannot reasonably estimate the range of loss, if any, that may
result from this matter. Consistent with the accounting for contingent liabilities, no accrual has been recorded in the financial statements.
19. Quarterly Financial Data (Unaudited)
The following tables summarize the unaudited quarterly financial data for the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amount)
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
27,045
|
|
$
|
27,450
|
|
$
|
27,040
|
|
$
|
29,959
|
|
Gross profit
|
|
|
15,610
|
|
|
16,726
|
|
|
16,398
|
|
|
17,167
|
|
Integration, restructuring and other charges
|
|
|
270
|
|
|
733
|
|
|
741
|
|
|
2,492
|
|
Loss from operations
|
|
|
(3,581
|
)
|
|
(1,668
|
)
|
|
(3,126
|
)
|
|
(4,784
|
)
|
Net loss
|
|
|
(3,534
|
)
|
|
(1,198
|
)
|
|
(3,121
|
)
|
|
(4,349
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.14
|
)
|
$
|
(0.05
|
)
|
$
|
(0.12
|
)
|
$
|
(0.17
|
)
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
33,999
|
|
$
|
31,637
|
|
$
|
26,602
|
|
$
|
26,784
|
|
Gross profit
|
|
|
20,347
|
|
|
18,619
|
|
|
14,350
|
|
|
16,630
|
|
Integration, restructuring and other charges
|
|
|
124
|
|
|
1,014
|
|
|
1,619
|
|
|
1,902
|
|
Loss from operations
|
|
|
(1,589
|
)
|
|
(3,038
|
)
|
|
(7,137
|
)
|
|
(49,558
|
)
|
Net loss
|
|
|
(1,552
|
)
|
|
(3,006
|
)
|
|
(7,103
|
)
|
|
(49,761
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.12
|
)
|
$
|
(0.29
|
)
|
$
|
(2.03
|
)
|
76
Table of Contents