We use a three-tier value hierarchy to prioritize the inputs used in measuring fair value of our financial assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
We also consider additional information in estimating fair value when the volume and level of activity for the asset or liability have significantly decreased, or circumstances indicate a transaction is not suitable for fair value measurement. See Note 5 for further discussion of the fair value of our financial instruments.
Cash and Cash Equivalents
Cash and cash equivalents consist of balances with banks (including restricted cash), money market accounts and liquid short-term investments with original maturities of ninety days or less and are carried on the balance sheet at cost plus accrued interest. As of December 31, 2012, cash and cash equivalents were $35,875, including restricted cash of $813. Restricted cash consisted of letters-of-credit relating to our leased facilities.
Inventory
Inventory, consisting principally of finished goods (primarily purchased third-party hardware) is stated at the lower of cost or market determined on a first-in, first-out (FIFO) basis. We also maintain inventory reserves for excess and obsolete inventory determined based on the age of our inventory.
Other Current Assets
Other current assets consist primarily of revenue recognized that has not yet been billed to a customer, unbilled A/R from acquisitions, an equity investment and other non-trade receivables, all of which are due within the next twelve months. The balances are comprised of the following as of December 31, 2012 and 2011:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Revenue recognized in excess of billings, net of reserves of $1,763 and $235, respectively
|
|
$
|
18,812
|
|
|
$
|
18,064
|
|
Acquired unbilled A/R
|
|
|
350
|
|
|
|
1,769
|
|
Equity investment
|
|
|
2,016
|
|
|
|
-
|
|
Other non-trade receivables
|
|
|
443
|
|
|
|
366
|
|
|
|
$
|
21,621
|
|
|
$
|
20,199
|
|
The following table shows the changes in our reserves for revenue recognized in excess of billings:
|
|
Balance at Beginning of Period
|
|
|
Net Additions Charged to Expenses
|
|
|
Deductions
|
|
|
Balance at End of Period
|
|
For year ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
235
|
|
|
$
|
1,528
|
|
|
$
|
-
|
|
|
$
|
1,763
|
|
2011
|
|
|
-
|
|
|
$
|
235
|
|
|
$
|
-
|
|
|
$
|
235
|
|
During the fourth quarter of 2012, we recorded a charge of $1,308 related primarily to uncollectible billings from customer contracts obtained through acquisitions in the past few years. The $1,308 related to a change in estimate to our reserve for revenues in excess of billings. The effect of the change in estimate related to our reserve for revenues in excess of billings, which was recorded to general and administrative in our statement of operations, was to increase our net loss by $1,308 ($0.01 per share, net of income tax), for the year ended December 31, 2012.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Property and equipment are evaluated for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, based primarily upon whether expected future undiscounted cash flows are sufficient to support the asset’s recovery. Useful lives of our major classes of property and equipment are three years for computer equipment and three to five years for office equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the term of the lease. We recorded depreciation expense of $3,752, $3,955 and $4,091 in 2012, 2011 and 2010, respectively.
Intangible Assets and Goodwill
Intangible assets include purchased and capitalized technology, customer relationships, backlog, trade names, and non-compete agreements. Finite-lived intangible assets are amortized to reflect the pattern of economic benefits consumed, which is primarily the straight-line method.
Purchased software and capitalized software are tested for impairment quarterly by comparing the net realizable value (estimated using undiscounted future cash flows) to the carrying value of the software. If the carrying value of the software exceeds its net realizable value, we record an impairment charge in the period in which the impairment is incurred equal to the amount of the difference between the carrying value and estimated undiscounted future cash flows.
Customer relationships, backlog, trade names and non-compete agreements are evaluated for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, based primarily upon whether expected future undiscounted cash flows are sufficient to support the asset’s recovery. If the actual useful life of the asset is shorter than the useful life estimated by us, the asset may be deemed to be impaired, and, accordingly, a write-down of the value of the asset determined by a discounted cash flow analysis, or a shorter amortization period, may be required. We have reviewed these assets with estimable useful lives and determined that their carrying values as of December 31, 2012 are recoverable in future periods.
All research and development costs incurred prior to the point at which management believes a project has reached technological feasibility or incurred in the preliminary stages of development are expensed as incurred.
We review goodwill for impairment annually on October 1st, or more frequently if impairment indicators arise. During 2012, our reporting units changed from Merge Healthcare and Merge eClinical to Merge Healthcare and Merge Data and Analytics (DNA) due to the level of discrete financial information as well as the aggregation of Merge’s components, which exhibit similar long term performance and have similar economic characteristics. In calculating potential impairment losses, we evaluate the fair value of goodwill using either quoted market prices or, if not available, by estimating the expected present value of their future cash flows. Identification of, and assignment of assets and liabilities to, a reporting unit require our judgment and estimates. In addition, future cash flows are based upon our assumptions about future sales activity and market acceptance of our products. We performed our annual goodwill testing and determined that there is no impairment, since the fair value of our reporting units substantially exceeded the carrying value.
Other Current Liabilities
Other current liabilities consist primarily of customer deposits, the current portion of an acquisition obligation, accrued taxes, lease line facility, leases payable, and other non-trade payables, all of which are due within the next twelve months. The balances are comprised of the following as of December 31, 2012 and 2011:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Customer deposits
|
|
$
|
3,409
|
|
|
$
|
2,469
|
|
Acquisition obligation
|
|
|
2,815
|
|
|
|
4,651
|
|
Accrued taxes
|
|
|
998
|
|
|
|
782
|
|
Lease line facility
|
|
|
897
|
|
|
|
-
|
|
Leases payable
|
|
|
83
|
|
|
|
473
|
|
Other liabilities
|
|
|
4,404
|
|
|
|
3,205
|
|
|
|
$
|
12,606
|
|
|
$
|
11,580
|
|
The acquisition obligation relates to the current portion of the balance due for an insignificant acquisition completed in 2011. The non-current portion of $2,041 and $4,558 is recorded in other non-current liabilities in our consolidated balance sheets as of December 31, 2012 and 2011, respectively. Total amounts to be paid under this obligation of $2,815, $1,967 and $273 in 2013, 2014 and 2015, respectively, were recorded at their discounted amounts based on the payment due dates.
Guarantees
We recognize the fair value of guarantee and indemnification arrangements issued or modified by us, as applicable. In addition, we must continue to monitor the conditions that are subject to the guarantees and indemnifications in order to identify if a loss has occurred. If we determine it is probable that a loss has occurred, then any such estimable loss would be recorded under those guarantees and indemnifications.
Under our standard software license agreements, we agree to indemnify, defend and hold harmless our licensees from and against certain losses, damages and costs arising from claims alleging the licensees’ use of our software infringes the intellectual property rights of a third party. Historically, we have not been required to pay material amounts in connection with claims asserted under these provisions, and, accordingly, we have not recorded a liability relating to such provisions. We also represent and warrant to licensees that our software products will operate substantially in accordance with published specifications, and that the services we perform will be undertaken by qualified personnel in a professional manner conforming to generally accepted industry standards and practices. Historically, only minimal costs have been incurred relating to the satisfaction of product warranty claims.
Other guarantees include promises to indemnify, defend and hold harmless each of our executive officers, non-employee directors and certain key employees from and against losses, damages and costs incurred by each such individual in administrative, legal or investigative proceedings arising from alleged wrongdoing by the individual while acting in good faith within the scope of his or her job duties on our behalf.
Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. Our provision for income taxes is determined using the asset and liability approach to account for income taxes. A current liability is recorded for the estimated taxes payable for the current year. Deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the timing differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates or tax laws are recognized in the provision for income taxes in the period that includes the enactment date.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more-likely-than-not to be realized. Changes in valuation allowances will flow through the statement of operations unless related to deferred tax assets that expire unutilized or are modified through translation, in which case both the deferred tax asset and related valuation allowance are similarly adjusted. Where a valuation allowance was established through purchase accounting for acquired deferred tax assets, any future change will be credited or charged to income tax expense.
The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities. In the ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain. In spite of our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities. We determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions. Unrecognized tax benefits are evaluated quarterly and adjusted based upon new information, resolution with taxing authorities and expiration of the statute of limitations. The provision for income taxes includes the impact of changes in the liability for our uncertain tax positions. Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.
Accumulated Other Comprehensive Income
Foreign currency translation adjustments and unrealized gains or losses on our available-for-sale securities, net of applicable taxes, are included in accumulated other comprehensive income, and are further detailed in Note 5 for the years ended December 31, 2012 and 2011.
Revenue Recognition
Revenues are derived primarily from the licensing of software, sales of hardware and related ancillary products, hosted clinical trial software-as-a-service (SaaS) offerings, installation and engineering services, training, consulting, and software maintenance and support. Inherent to software revenue recognition are significant management estimates and judgments in the interpretation and practical application of the complex rules to individual contracts. These interpretations generally would not influence the amount of revenue recognized, but could influence the timing of such revenues. Typically, our contracts contain multiple elements, and while the majority of our contracts contain standard terms and conditions, there are instances where our contracts contain non-standard terms and conditions. As a result, contract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in a multiple-element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, the relative selling price that should be allocated to each of the elements and when to recognize revenue for each element.
We recognize revenue on software arrangements involving multiple elements, including separate arrangements with the same customer executed within a short time frame of each other, based on the vendor-specific objective evidence (VSOE) of fair values of those elements. For the majority of our business, we determine the fair value of the maintenance and support portion of the arrangement based on the substantive renewal price of the maintenance offered to customers, which generally is stated in the contract. The fair value of installation, engineering services, training, and consulting is based upon the price charged when these services are sold separately. For sales transactions where the software is incidental or the only contract deliverable is engineering or other services, as well as hardware transactions where no software is involved, we recognize revenue based on VSOE of fair value, other third-party evidence of fair value or our best estimated selling price of those elements.
Revenue from multiple-element arrangements including software is recognized using the residual method. Under the residual method, revenue is recognized in a multiple element arrangement when fair value exists for all of the undelivered elements in the arrangement, even if fair value does not exist for one or more of the delivered elements in the arrangement, assuming all other conditions for revenue recognition have been satisfied. If evidence of fair value cannot be established for the maintenance and support element of a sale, and it represents the only undelivered element, all contract elements are deferred and recognized ratably over the related maintenance and support period.
Revenue from multiple-element arrangements not including software is typically recognized using the relative method. Under the relative method, revenue is recognized in a multiple element arrangement based on selling prices for all of the elements in the arrangement, assuming all other conditions for revenue recognition have been satisfied.
Provided that evidence of an arrangement exists, fees are fixed or determinable, collection of the related receivable is probable, fair value for the undelivered elements exist and there are no other contract considerations resulting in the deferral of revenue, we typically recognize revenue in the following manner:
·
|
Software licenses and hardware are recognized upon delivery, while installation, engineering services, training, and consulting services are recognized as performed and maintenance and support is recognized ratably over the period in which the services are performed. This is the primary method used for sales of software products which are typically fully functional upon delivery and do not require significant modification or alteration. Any subsequent software royalties associated with such contracts are generally recognized as reported by the customer. Revenue is also recognized in this manner for the majority of sales of additional modules to existing customers.
|
·
|
Merge sells software with or without various standard hardware components (i.e. servers, monitors, storage disk arrays, etc.). The hardware items are sold primarily as a convenience for its customers who may choose not to purchase it because either they already have the applicable hardware or they purchased the hardware directly from a third party vendor. We have a sufficient number of stand-alone sales of hardware to allow it to obtain vendor-specific objective evidence of fair value for the hardware. These arrangements include software that is more-than-incidental to the hardware. Therefore, the software is not essential to the functionality of the hardware (and vise versa). Software licenses sold through annual contracts that include software maintenance and support are deferred and recognized ratably over the one-year period.
|
·
|
Revenues derived from SaaS offerings are generally recognized ratably as we provide software application-hosting and are recognized using the proportional performance method for services provided to customers under fixed-price contracts. Such contracts are entered into by certain customers with clinical trial products comprising the vast majority. These contracts consist of master agreements containing general terms and conditions and separately negotiated addendums (called task orders) which include services, software subscription and usage fees, and hosting fees. Customers generally have the ability to terminate contracts upon 30 days notice. However, these contracts typically require payment of fees earned from all services provided through the termination date.
|
·
|
If services are considered essential to the functionality of the software, revenue is recognized based on service hours expended through project completion and maintenance and support is recognized ratably over the applicable period.
|
·
|
EDI revenues are typically recognized monthly based on transactional volumes or a fixed fee.
|
If services are considered essential, we recognize revenue using either the proportional performance guidelines or percentage of completion accounting, as appropriate. Revenue is determined by the input method based upon the amount of labor hours expended compared to the total labor hours expended plus the estimated amount of labor hours to complete the project. Total estimated labor hours are based on management’s best estimate of the total amount of time it will take to complete a project. These estimates require the use of judgment. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts. We review our contract estimates periodically to assess the possible need for revisions in contract values and estimated labor hours, and reflect changes in estimates in the period that such estimates are revised under the cumulative catch-up method. When estimates indicate a loss, such loss is recognized in the current period in its entirety. Because of the inherent uncertainties in estimating total labor hours, it is possible that the estimates will change and could result in a material change of revenue recognized in the applicable period. We record a loss for a contract at the point it is determined that the total estimated contract costs will exceed management’s estimates of contract revenues. As of December 31, 2012, we have not experienced any material losses on uncompleted contracts.
We assess collectability based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. We must exercise our judgment when we assess the probability of collection and the current credit worthiness of each customer. We have provided for an allowance for estimated returns and credits based on our historical experience of returns and customer credits.
Deferred revenue is comprised of deferrals for license fees, support and maintenance and other services. Long-term deferred revenue as of December 31, 2012 represents license fees, support and maintenance and other services to be earned or provided beginning January 1, 2014. Revenue recognized that has not yet been billed to a customer results in an asset as of the end of the period. As of December 31, 2012 and 2011, there was $18,812 and $18,064 net of reserves recorded within other current assets related to revenue recognized that has not yet been billed.
We record reimbursable out-of-pocket expenses in both services and maintenance net sales and as a direct cost of services and maintenance. The reimbursement by customers of shipping and handling costs are recorded in software and other net sales and the associated cost as a cost of sale. Sales tax, if any, is passed on to our customers.
Share-Based Compensation
We calculate share-based compensation expense for option awards based on the estimated grant-date fair value using the Black-Scholes option pricing model, and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures. We evaluate the assumptions used to value stock options and restricted stock awards on a quarterly basis. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider different factors when estimating expected forfeitures, including types of awards, employee class, and historical experience
.
Recent Accounting Pronouncements
We describe below recent pronouncements that have had or may have a significant effect on our financial statements or have an effect on our disclosures. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, statement of operations, or related disclosures.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-04,
Technical Corrections and Improvements.
The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU No. 2012-014 did not have a material impact on our statement of operations, financial position or cash flows.
In August 2012, the FASB issued ASU No. 2012-03,
Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update No. 2010-22 (SEC Update).
This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU No. 2012-03 did not have a material impact on our statement of operations, financial position, or cash flows.
In July 2012, the FASB issued ASU No. 2012-02,
Intangibles — Goodwill and Other — Testing Indefinite-Lived Intangible Assets for Impairment
, to establish an optional two-step analysis for impairment testing of indefinite-lived intangibles other than goodwill. The two-step analysis establishes an optional qualitative assessment to precede the quantitative assessment, if necessary. In the qualitative assessment, the entity must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The entity must proceed to conducting a quantitative analysis, according to which the entity would record an impairment charge for the amount of the asset’s fair value exceeding the carrying amount, if (1) the entity determines that such an impairment is more likely than not to exist, or (2) the entity foregoes the qualitative assessment entirely. The standards update will be effective for financial statements of periods beginning after September 15, 2012, with early adoption permitted. The adoption of ASU No. 2012-02 is not expected to have a material impact on our statement of operations, financial position, or cash flows.
In September 2011, the FASB issued ASU No. 2011-08,
Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment
. This ASU permits a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the two-step goodwill impairment test. If an entity can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. This ASU is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. The adoption of ASU No. 2011-08 did not have a material impact on our statement of operations, financial position, or cash flows.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
.
ASU No. 2011-05 amends the FASB Accounting Standards Codification (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. We adopted ASU No. 2011-05 as of January 1, 2012, and it did not impact the presentation of comprehensive income in our consolidated condensed financial statements.
In May 2011, the FASB issued ASU No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.
This ASU represents the converged guidance of the FASB and the International Accounting Standards Board (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU No. 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments to this ASU are to be applied prospectively. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material impact on our statement of operations, financial position or cash flows.
(4)
|
Goodwill and Other Intangible Assets
|
Goodwill
Goodwill is our primary intangible asset not subject to amortization. The changes in carrying amount in the years ended December 31, 2012 and 2011 was as follows:
|
|
Total
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
169,533
|
|
|
|
-
|
|
|
|
-
|
|
Increase due to acquisitions
|
|
|
40,333
|
|
|
|
-
|
|
|
|
-
|
|
Increase due to foreign currency
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2011
|
|
$
|
209,829
|
|
|
|
-
|
|
|
|
-
|
|
Increase due to acquisitions
|
|
|
4,431
|
|
|
|
-
|
|
|
|
-
|
|
Allocation in operating segments
|
|
|
-
|
|
|
$
|
194,115
|
|
|
$
|
20,145
|
|
Increase due to foreign currency
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
Balance at December 31, 2012
|
|
$
|
214,312
|
|
|
$
|
194,115
|
|
|
$
|
20,197
|
|
Other Intangible Assets
Our intangible assets subject to amortization are summarized as of December 31, 2012 and 2011 as follows:
|
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Remaining Amortization Period (Years)
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Purchased software
|
|
|
4.6
|
|
|
$
|
31,066
|
|
|
$
|
(12,350
|
)
|
|
$
|
31,382
|
|
|
$
|
(7,955
|
)
|
Capitalized software
|
|
|
1.9
|
|
|
|
1,825
|
|
|
|
(1,534
|
)
|
|
|
1,825
|
|
|
|
(1,328
|
)
|
Customer relationships
|
|
|
6.2
|
|
|
|
46,302
|
|
|
|
(15,012
|
)
|
|
|
45,068
|
|
|
|
(7,576
|
)
|
Backlog
|
|
|
1.4
|
|
|
|
9,680
|
|
|
|
(8,338
|
)
|
|
|
9,680
|
|
|
|
(6,127
|
)
|
Trade names
|
|
|
7.7
|
|
|
|
1,463
|
|
|
|
(446
|
)
|
|
|
2,081
|
|
|
|
(413
|
)
|
Non-competes
|
|
|
4.3
|
|
|
|
3,190
|
|
|
|
(1,211
|
)
|
|
|
3,230
|
|
|
|
(791
|
)
|
Total
|
|
|
|
|
|
$
|
93,526
|
|
|
$
|
(38,891
|
)
|
|
$
|
93,266
|
|
|
$
|
(24,190
|
)
|
As a result of an insignificant acquisition in the twelve months ended December 31, 2012, we increased the gross carrying amounts of purchased software, customer relationships, and trade names by $780, $1,220, and $80, respectively. Upon completion of a product rationalization and a product being rebranded in the fourth quarter of 2012, we recorded a $796 impairment charge to purchased software and a $474 impairment charge to trade names. We also wrote off the fully amortized gross carrying amounts and the accumulated amortization related to the purchased software and trade name of $1,110 and $620, respectively, in 2012.
In 2011, we increased the gross carrying amount of purchased software, customer relationships, backlog, trade names and non-competes by $2,438, $6,940, $1,580, $710 and $130, respectively, as a result of insignificant acquisitions. Upon completion of a product rebranding initiative in the second quarter of 2011, we recorded a $2,805 charge due to the impairment of our trade names associated with certain products. In the second quarter of 2011, we wrote off $5,635 and $3,476, respectively, of the gross carrying amount and accumulated amortization of certain purchased software assets and customer relationship assets which were fully amortized. We also wrote off fully amortized gross carrying amounts and accumulated amortization of $3,157 in trade name assets.
Estimated aggregate amortization expense for our intangible assets, which become fully amortized in 2022, for the remaining periods is as follows:
For the year ended December 31:
|
|
2013
|
|
$
|
14,021
|
|
|
|
2014
|
|
|
12,367
|
|
|
|
2015
|
|
|
9,750
|
|
|
|
2016
|
|
|
7,706
|
|
|
|
2017
|
|
|
5,524
|
|
|
|
Thereafter
|
|
|
5,267
|
|
|
|
Total
|
|
$
|
54,635
|
|
Amortization expense, including impairments for our intangible assets, is set forth in the following table:
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Amortization and impairment included in cost of sales
|
|
|
|
|
|
|
|
|
|
Purchased software
|
|
$
|
5,501
|
|
|
$
|
4,915
|
|
|
$
|
7,100
|
|
Capitalized software
|
|
|
205
|
|
|
|
189
|
|
|
|
583
|
|
Backlog
|
|
|
2,211
|
|
|
|
3,745
|
|
|
|
2,245
|
|
Total
|
|
$
|
7,917
|
|
|
$
|
8,849
|
|
|
$
|
9,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and impairment included in operating expenses
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
7,434
|
|
|
$
|
5,667
|
|
|
$
|
3,183
|
|
Trade names
|
|
|
732
|
|
|
|
3,241
|
|
|
|
315
|
|
Non-competes
|
|
|
461
|
|
|
|
496
|
|
|
|
295
|
|
Total
|
|
|
8,627
|
|
|
|
9,404
|
|
|
|
3,793
|
|
Total amortization and impairment
|
|
$
|
16,544
|
|
|
$
|
18,253
|
|
|
$
|
13,721
|
|
(5)
|
Fair Value of Investments
|
Our financial instruments include cash and cash equivalents, accounts receivable, marketable and non-marketable securities, accounts payable, notes payable, and certain accrued liabilities. The carrying amounts of these assets and liabilities approximate fair value due to the short maturity of these instruments. The carrying amounts of our marketable equity securities are based on the quoted price of the security in an active market. The estimated fair values of the non-marketable equity securities have been determined from information obtained from independent valuations and management estimates. The fair value of our notes payable was approximately 107.875% of par value as of December 31, 2012 and 106.125% of par value as of December 31, 2011, based on Level 1 inputs which include quoted prices of the securities in an active market. See Note 7 for further discussion of the fair value of our debt.
Current Investment
In the second quarter of 2012, we received an equity security investment from a customer as settlement for purchase commitments and outstanding receivables associated with a contract. This equity investment is classified as a Level 2 trading security within other current assets in our condensed consolidated balance sheet. We estimate the fair value of this investment on a recurring basis based on the quoted market price of the security less a discount due to a trading restriction. The valuation technique for this level 2 investment utilized qualitative and quantitative methodologies including other publicly traded companies and option pricing models. Upon receipt, we estimated the fair value of this investment at $1,530. At December 31, 2012, we estimated the fair value of this investment at $2,016, and recorded a gain of $486 within the other, net line in our statements of operations in the twelve months ended December 31, 2012, respectively.
Non-Current Investments
At December 31, 2012, we held certain securities in a publicly traded entity and private companies, which are classified within other assets in our condensed consolidated balance sheet. The investment in the publicly traded equity security, over which we do not exert significant influence, is classified as available-for-sale and reported at fair value on a recurring basis using Level 1 inputs. Unrealized gains and losses are reported within the accumulated other comprehensive income component of shareholders’ equity. The investments in equity securities of private companies, over which we do not exert significant influence, are classified as Level 3 investments and are reported at cost or fair value, if an other-than-temporary loss has been determined. Any loss due to impairment in value is recorded when such loss occurs. We performed the evaluation of our Level 3 investments as of December 31, 2012, and concluded that there were no significant changes in their fair value.
The following tables set forth the change in the fair value of our Level 1, Level 2, and Level 3 investments for the periods indicated:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Balance at December 31, 2010
|
|
$
|
55
|
|
|
$
|
-
|
|
|
$
|
313
|
|
|
$
|
368
|
|
Unrealized gain
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Balance at December 31, 2011
|
|
$
|
106
|
|
|
$
|
-
|
|
|
$
|
313
|
|
|
$
|
419
|
|
Acquired investments
|
|
|
-
|
|
|
|
1,530
|
|
|
|
240
|
|
|
|
1,770
|
|
Unrealized gain (loss)
|
|
|
(50
|
)
|
|
|
486
|
|
|
|
-
|
|
|
|
436
|
|
Balance at December 31, 2012
|
|
$
|
56
|
|
|
$
|
2,016
|
|
|
$
|
553
|
|
|
$
|
2,625
|
|
In the second quarter of 2011, we received proceeds of $405 from the sale of an investment in equity securities of a private company, which had a carrying value of zero, and recorded a $405 gain in other income (expense) in our statement of operations.
Unrealized gains or losses on our available-for-sale (publicly traded) security, as well as foreign currency translation adjustments, are components of accumulated other comprehensive income as set forth in the following table:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cumulative translation adjustment
|
|
$
|
1,965
|
|
|
$
|
1,961
|
|
|
$
|
1,936
|
|
Unrealized loss on available-for-sale security, net of tax
|
|
|
(398
|
)
|
|
|
(348
|
)
|
|
|
(392
|
)
|
Total accumulated other comprehensive income
|
|
$
|
1,567
|
|
|
$
|
1,613
|
|
|
$
|
1,544
|
|
We incurred $830, $1,216 and $5,006 of restructuring costs in the years ended December 31, 2012, 2011 and 2010, respectively, in restructuring and other expenses in our statements of operations.
In 2012, we completed a restructuring initiative to reduce our workforce. This action was taken based upon our assessment of ongoing personnel needs. As a result, we incurred $830 of employee termination costs that were recorded in restructuring and other expenses in our statement of operations.
In 2011, we committed to a restructuring initiative to reduce our workforce by approximately 30 individuals. This action was taken based upon our assessment of ongoing personnel needs. We incurred $1,167 in severance and related costs through 2012 related to this initiative. An additional $49 was incurred in 2011 related to prior year initiatives.
In 2010, we committed to a restructuring initiative to materially reduce our workforce by approximately 125 individuals and exit certain facilities. In the second quarter of 2010, we exited each of our Bellevue, Washington; Milwaukee, Wisconsin and Hudson, Ohio facilities. This action was taken concurrent with the acquisition of AMICAS based upon our assessment of ongoing personnel needs. In the third quarter of 2010, we exited our New Brighton, Massachusetts facility as part of the plan for this initiative. We incurred $2,116 in severance and related costs, $2,225 in contract exit costs and $505 in relocation costs in 2010 associated with this initiative. An additional $160 was incurred in 2010 related to prior year initiatives.
The following table shows a summary of the restructuring activity through December 31, 2012:
|
|
Employee Termination Costs
|
|
|
Lease & Contract
Exit Costs
|
|
|
Relocation
|
|
|
Total
|
|
Balance at December 31, 2009
|
|
$
|
662
|
|
|
$
|
217
|
|
|
$
|
-
|
|
|
$
|
879
|
|
Charges to expense
|
|
|
2,116
|
|
|
|
2,225
|
|
|
|
505
|
|
|
|
4,846
|
|
Payments
|
|
|
(2,339
|
)
|
|
|
(744
|
)
|
|
|
(463
|
)
|
|
|
(3,546
|
)
|
Foreign Exchange
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
Balance at December 31, 2010
|
|
$
|
449
|
|
|
$
|
1,698
|
|
|
$
|
42
|
|
|
$
|
2,189
|
|
Charges to expense
|
|
|
1,137
|
|
|
|
104
|
|
|
|
(25
|
)
|
|
|
1,216
|
|
Payments
|
|
|
(612
|
)
|
|
|
(1,365
|
)
|
|
|
(17
|
)
|
|
|
(1,994
|
)
|
Foreign Exchange
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
Balance at December 31, 2011
|
|
$
|
970
|
|
|
$
|
437
|
|
|
$
|
-
|
|
|
$
|
1,407
|
|
Charges to expense
|
|
|
830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
830
|
|
Payments
|
|
|
(1,094
|
)
|
|
|
(434
|
)
|
|
|
-
|
|
|
|
(1,528
|
)
|
Non-Cash Adjustment
|
|
|
(487
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(487
|
)
|
Balance at December 31, 2012
|
|
$
|
219
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
222
|
|
As of December 31, 2012, the remaining balance of $222 is included in the restructuring accrual in current liabilities. We expect that the majority of the balance will be paid out by the end of 2013.
(7)
|
Debt and Operating Leases
|
In April 2010, we issued $200,000 of Notes in order to finance the acquisition of AMICAS. The Notes were issued at 97.266% of the principal amount, bear interest at 11.75% of principal (payable on May 1st and November 1st of each year) and will mature on May 1, 2015. The Notes were offered in a private placement pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. Subsequent to the issuance of the Notes, we completed an exchange offer to satisfy our obligations under the registration rights agreement entered into in connection with the issuance of the Notes, pursuant to which we exchanged the Notes for new Notes that were registered under the Securities Act of 1933 but otherwise identical in all material respects. In connection with the Notes, we incurred issuance costs of $9,015 (which are recorded in other assets on the consolidated balance sheet). These issuance costs are recorded as a long-term asset and amortized over the life of the Notes using the effective interest method.
In June 2011, we issued an additional $52,000 in Notes at 103.0% of the principal amount with terms identical to the existing Notes. The proceeds of these additional Notes were used to redeem and retire our Series A Preferred Stock and to pay associated dividends (as further discussed in Note 8). These additional Notes were offered in a private placement pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. Prior to issuance, we received consents from the majority of holders of the existing Notes to amend the Indenture to allow us to incur the additional indebtedness. As consideration for the consents, we paid $1,528 in consent fees from the proceeds of the Notes. These fees are recorded as an issuance cost in long-term assets and will be amortized, along with the premium, over the remaining life of the Notes using the effective interest method. Subsequent to the issuance of the additional Notes, we completed an exchange offer to satisfy our obligations under the registration rights agreement entered into in connection with the issuance of the additional Notes, pursuant to which we exchanged the Notes for new Notes that were registered under the Securities Act of 1933 but otherwise identical in all material respects. We also incurred $1,686 in costs related to the issuance of the additional Notes that did not qualify for capitalization. These costs are recorded in other expense, net of our consolidated statement of operations in 2011.
In 2012, 2011 and 2010, we recorded $32,334, $29,135 and $17,308, respectively, of interest expense related to the Notes, including $2,049, $1,659 and $899, respectively, in amortization of debt issuance costs and $675, $733 and $546, respectively, in amortization of net debt discount. In 2012, 2011 and 2010, we made interest payments of $29,610, $25,723 and $11,946, respectively, related to the Notes. As of December 31, 2012 and 2011, the notes payable balances on our consolidated balance sheet included $1,954 and $2,629, respectively, of unamortized net discount related to the Notes. In 2011 we also repaid $4,591 in debt obligations which we assumed from an insignificant acquisition.
At any time on or prior to May 1, 2013, we may redeem any of the Notes at a price equal to 100% of the principal amount thereof plus an applicable “make-whole” premium plus accrued and unpaid interest, if any, to the redemption date. At any time and from time to time during the twelve month period commencing May 1, 2013, we may redeem the Notes, in whole or in part, at a redemption price equal to 105.875% of the principal amount thereof and accrued and unpaid interest, if any, to the redemption date. At any time and from time to time after May 1, 2014, we may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof and accrued and unpaid interest, if any, to the redemption date. In addition, prior to May 1, 2013, we may redeem up to 35% of the Notes at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, using proceeds from permitted sales of certain kinds of our capital stock. Upon the occurrence of a change of control or the sale of substantially all of our assets, we may be required to repurchase some or all of the Notes. The obligations under the Notes are fully and unconditionally guaranteed (except for certain release provisions which are considered customary, which apply only to our subsidiaries), jointly and severally, on a senior, secured basis by all of our current and future domestic restricted subsidiaries. The Notes and guarantees are secured by a first-priority lien on certain collateral which comprises substantially all of our and the guarantors’ tangible and intangible assets, subject to certain exceptions.
In addition, the Notes contain certain covenants with varying restriction levels, which may limit our ability to:
|
·
|
Incur additional indebtedness or issue preferred stock;
|
|
·
|
Pay dividends or make distributions with respect to capital stock;
|
|
·
|
Make certain investments or certain other restricted payments;
|
|
·
|
Issue dividends or enter into other payment restrictions affecting certain subsidiaries;
|
|
·
|
Enter into certain sale-leaseback transactions;
|
|
·
|
Enter into transactions with stockholders or affiliates;
|
|
·
|
Issue or sell stock of certain subsidiaries; and
|
|
·
|
Merge or consolidate without meeting certain conditions.
|
We have a $15.0 million lease line facility with interest at 7.4% through March 31, 2013. As of December 31, 2012, $0.9 million is outstanding and included in other current liabilities and $14.1 million is unused.
We have non-cancelable operating leases at various locations. Our five largest operating leases are all facility leases as set forth in the following table:
Location
|
|
Square
Footage
|
|
|
Annual Lease Payments
|
|
End of Term
|
Chicago, Illinois
|
|
|
33,000
|
|
|
$
|
612
|
|
December 2013
|
Daytona Beach, Florida
|
|
|
36,000
|
|
|
|
332
|
|
December 2013
|
Hartland, Wisconsin
|
|
|
81,000
|
|
|
|
694
|
|
November 2025
|
Mississauga, Ontario
|
|
|
24,000
|
|
|
|
615
|
|
February 2020
|
Morrisville, North Carolina
|
|
|
17,000
|
|
|
|
258
|
|
September 2016
|
We entered into a sale-leaseback transaction for the Hartland facility on November 10, 2010, as allowed under the terms of the Notes. We received $6,124 in proceeds from the sale and recorded a gain on the sale of $227, which is being deferred and amortized into rent expense over the 15 year term of the lease.
Total rent expense in 2012, 2011 and 2010 was $3,351, $3,443, and $2,031, respectively. Future minimum lease payments under all non-cancelable operating leases as of December 31, 2012, are:
2013
|
|
$
|
3,186
|
|
2014
|
|
|
1,724
|
|
2015
|
|
|
1,756
|
|
2016
|
|
|
1,585
|
|
2017
|
|
|
1,350
|
|
Thereafter
|
|
|
6,915
|
|
Total minimum lease payments
|
|
$
|
16,516
|
|
Income received under non-cancelable sub-leases in 2012 is $227 and in 2013 will be $76. The above obligations include lease payments related to facilities that we have either ceased to use or abandoned as of December 31, 2012. The related obligations for such facilities have been recorded as restructuring related accruals in our consolidated balance sheet as of December 31, 2012.
In 2012, we issued 1,356,917 shares of our common stock valued at $5,202 as consideration for insignificant acquisitions. The value of the shares issued was based on the closing price of our common stock on the earlier of the date shares were issued or subscribed, discounted based upon a holdback provision and trading restrictions over one year. The agreement also contained a provision for a settlement at a future date calculated by the change in the volume weighted average price of our stock. This was accounted for as a liability based on the use of the Monte Carlo Simulation Method. Through settlement, we incurred a $1,383 charge to Acquisition-related expenses for the change in fair value of this Level 2 instrument. These shares were issued pursuant to an exception from registration provided by Section 4(2) of the Securities Act of 1933, as amended. We also issued 505,038 shares of restricted stock which immediately vested to current employees as settlement of contingent consideration arising for an insignificant acquisition. The restricted shares were valued at $1,827 based on the closing price of our common stock on the date of issuance. We also issued 53,574 shares of our common stock, valued at $373, as partial consideration for an insignificant acquisition which was completed in the fourth quarter of 2011. These shares had been recorded as common stock subscribed as of December 31, 2011.
In 2011, w
e issued 6,044,898 shares of our common stock (including 175,866 shares subscribed at December 31, 2011) valued at $34,802, as partial consideration for three insignificant acquisitions completed in 2011. The value of the shares issued for acquisitions was based on the closing price of our common stock on the respective acquisition dates, with certain of the shares discounted based upon holdback provisions and trading restrictions over one year, as applicable. We also issued 974,701 shares of our common stock, valued at $3,147, as partial consideration for an insignificant acquisition which was completed in the fourth quarter of 2010. These shares had been recorded as common stock subscribed as of December 31, 2010.
In 2011, one of our insignificant acquisitions included a 63% ownership interest in a subsidiary. We recorded a non-controlling interest of $478 based upon 37% of the fair value of net assets of the less-than-wholly-owned subsidiary as of the acquisition date.
On December 31, 2011, we issued 485,232 shares of our common stock with a value of $1,851 as a charitable contribution. The value of the shares issued was based on the closing price of our common stock as of the transaction date, discounted based upon a one-year trading restriction. The expense is included in the general and administrative category within our consolidated statements of operations.
On April 1, 2010, we entered into a Securities Purchase Agreement with a limited number of institutional and accredited investors, including Merrick RIS, LLC (Merrick) and Merrick Venture Management LLC, under which we agreed to issue an aggregate of 41,750 shares of Series A Preferred Stock and 7,515,000 shares of our common stock for total proceeds of $41,750. We used the net proceeds from the offering to partially finance the acquisition of AMICAS. In June 2011, we redeemed and retired all outstanding shares of our Series A Preferred Stock at the face value of $41,750 and paid cumulative dividends of $7,328. Prior to the redemption, holders of our Series A Preferred Stock waived the two-year liquidation preference.
In the years ended December 31, 2012, 2011 and 2010, we recorded cumulative dividends of zero, $3,153 and $4,176, respectively, related to our Series A Preferred Stock. In the year ended December 31, 2010, we also recorded a deemed dividend of $14,900 upon issuance of the preferred stock for the difference between the relative fair value and the redemption value of $41,750. These dividends are reflected as an increase to net loss available to common shareholders in our consolidated statement of operations.
(9)
|
Share-Based Compensation
|
The following table summarizes share-based compensation expense related to share-based awards recognized in 2012, 2011 and 2010:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Share-based compensation expense included in the statement of operations:
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
$
|
90
|
|
|
$
|
45
|
|
|
$
|
69
|
|
Maintenance
|
|
|
40
|
|
|
|
186
|
|
|
|
96
|
|
Sales and marketing
|
|
|
1,805
|
|
|
|
1,460
|
|
|
|
442
|
|
Product research and development
|
|
|
451
|
|
|
|
36
|
|
|
|
231
|
|
General and administrative
|
|
|
3,400
|
|
|
|
2,181
|
|
|
|
1,785
|
|
Share-based compensation expense, net of tax
|
|
$
|
5,786
|
|
|
$
|
3,908
|
|
|
$
|
2,623
|
|
Share-Based Compensation Plans
We maintain four share-based employee compensation plans, including our employee stock purchase plan (ESPP), and one director option plan under which we grant restricted stock awards and options to acquire shares of our common stock to certain employees, non-employees, non-employee directors and to existing stock option holders in connection with the consolidation of option plans following an acquisition.
Our 2005 Equity Incentive Plan (EIP) provides for awards of common stock, non-statutory stock options, incentive stock options, stock unit and performance unit grants and stock appreciation rights to eligible participants. On June 2, 2011, our shareholders approved an amendment to our 2005 EIP to increase the number of shares of common stock authorized for issuance there under by 3,000,000 to 16,500,000 shares of our common stock. Under the terms of the 2005 EIP, incentive stock option grants are limited to 5.0 million shares. Also, under the EIP, new stock option grants have an exercise price equal to the fair market value of our common stock at the date of grant with limited exceptions. The majority of the options issued under the EIP vest over a three or four-year period. As of December 31, 2012, non-statutory stock options to purchase 12,142,041 shares of our common stock were outstanding under this plan.
Upon approval of the EIP, we stated that we did not plan to issue any more options under our other stock option plans. Our 1996 Employee Stock Option Plan provided for the grant of options to purchase a maximum of 3,265,826 shares of our common stock. Our 1998 Director Stock Option Plan, for our non-employee directors, provided for the granting of options to purchase a maximum of 300,000 shares of our common stock. In addition, our Board of Directors adopted an equity compensation plan in connection with our acquisition of a company in 2003. As of December 31, 2012, non-statutory stock options to purchase 30,411 shares of our common stock were outstanding under these plans.
Stock Options
We use the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant utilizing the assumptions noted in the following table. We expense the cost of stock option awards on a straight-line basis over the vesting period. Expected volatilities are based on the historical volatility of our stock and other factors. We use historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods during the contractual life of the option is based on the U.S. Treasury rates in effect at the grant date.
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
65
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Risk–free interest rate
|
|
|
0.3% - 0.8
|
%
|
|
|
0.6% - 1.8
|
%
|
|
|
0.8% - 2.1
|
%
|
Expected term (in years)
|
|
|
3.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Weighted–average grant date fair value
|
|
$
|
3.51
|
|
|
$
|
3.37
|
|
|
$
|
1.97
|
|
The assumptions above are based on multiple factors, including the historical exercise patterns of employees in relatively homogeneous groups with respect to exercise and post-vesting employment termination behaviors, expected future exercise patterns for these same homogeneous groups, and the volatility of our stock price. ASC Topic No. 718,
Compensation-Stock Compensation,
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
At December 31, 2012, there was $15,553 of unrecognized compensation cost related to stock option share-based payments. We expect this compensation cost to be recognized over a weighted-average period of 2.81 years.
Stock option activity for the year ended December 31, 2012 was as follows:
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Number
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Average
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(In Years)
|
|
|
Value
|
|
Options outstanding, December 31, 2010
|
|
|
7,959,110
|
|
|
$
|
2.94
|
|
|
|
5.5
|
|
|
$
|
10,720
|
|
Options granted
|
|
|
2,134,786
|
|
|
|
4.96
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(295,500
|
)
|
|
|
2.95
|
|
|
|
|
|
|
|
|
|
Options forfeited and expired
|
|
|
(607,362
|
)
|
|
|
6.91
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2011
|
|
|
9,191,034
|
|
|
$
|
3.14
|
|
|
|
5.2
|
|
|
$
|
17,860
|
|
Options granted
|
|
|
4,960,038
|
|
|
|
5.03
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(695,307
|
)
|
|
|
3.62
|
|
|
|
|
|
|
|
|
|
Options forfeited and expired
|
|
|
(1,283,313
|
)
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2012
|
|
|
12,172,452
|
|
|
$
|
3.63
|
|
|
|
4.1
|
|
|
$
|
3,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2012
|
|
|
5,545,382
|
|
|
$
|
2.50
|
|
|
|
3.4
|
|
|
$
|
3,765
|
|
Options exercisable, December 31, 2011
|
|
|
4,215,920
|
|
|
$
|
2.78
|
|
|
|
4.6
|
|
|
$
|
10,381
|
|
Options exercisable, December 31, 2010
|
|
|
2,795,937
|
|
|
$
|
3.75
|
|
|
|
4.8
|
|
|
$
|
4,226
|
|
During 2012, we granted 505,038 shares of restricted stock at a weighted-average grant date fair value of $3.62 per share of which all were vested in 2012. We also received cash proceeds of $688 from the exercise of stock options.
Other information pertaining to option activity was as follows:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Total fair value of stock options vested
|
|
$
|
8,380
|
|
|
$
|
6,719
|
|
|
$
|
4,585
|
|
Total fair value of restricted stock awards vested
|
|
|
1,591
|
|
|
|
-
|
|
|
|
613
|
|
The following table summarizes information about stock options outstanding at December 31, 2012:
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of exercise prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.00 - $2.48
|
|
|
|
2,670,000
|
|
|
|
3.2
|
|
|
$
|
1.06
|
|
|
|
2,657,500
|
|
|
$
|
0.64
|
|
$
2.48 - $4.97
|
|
|
|
5,990,240
|
|
|
|
4.2
|
|
|
|
3.24
|
|
|
|
2,359,927
|
|
|
|
2.11
|
|
$
4.97 - $7.46
|
|
|
|
3,449,164
|
|
|
|
4.8
|
|
|
|
6.06
|
|
|
|
464,907
|
|
|
|
3.16
|
|
$
7.46 - $9.95
|
|
|
|
10,000
|
|
|
|
0.4
|
|
|
|
9.78
|
|
|
|
10,000
|
|
|
|
4.03
|
|
$
9.95 - $12.44
|
|
|
|
1,694
|
|
|
|
4.3
|
|
|
|
10.81
|
|
|
|
1,694
|
|
|
|
3.29
|
|
$
14.92 - $17.41
|
|
|
|
21,354
|
|
|
|
1.3
|
|
|
|
16.22
|
|
|
|
21,354
|
|
|
|
6.17
|
|
$
17.41 - $19.90
|
|
|
|
30,000
|
|
|
|
2.4
|
|
|
|
17.50
|
|
|
|
30,000
|
|
|
|
1.80
|
|
|
|
|
|
12,172,452
|
|
|
|
4.1
|
|
|
$
|
3.63
|
|
|
|
5,545,382
|
|
|
$
|
1.51
|
|
Employee Stock Purchase Plan
We maintain an ESPP that allows eligible employees to purchase shares of our common stock through payroll deductions of up to 10% of eligible compensation on an after-tax basis. The eligible employees receive a 5% discount from the market price at the end of each calendar quarter. There is no stock-based compensation expense associated with our ESPP.
Employees contributed $353, $294, and $160, during the years ended December 31, 2012, 2011, and 2010, respectively, to purchase shares of our common stock under the employee stock purchase plan.
(10)
|
Commitments and Contingencies
|
On June 1, 2009, Merge Healthcare was sued in the Milwaukee County Circuit Court, State of Wisconsin, by William C. Mortimore and David M. Noshay with respect to the separation of Mortimore’s and Noshay’s employment and our subsequent refusal to indemnify them with respect to litigation related to their services as officers of Merge. The plaintiffs allege that we breached their employment agreements, unreasonably refused their requests for indemnification and breached other covenants of good faith and fair dealing. The plaintiffs seek indemnification and unspecified monetary damages. Discovery in this case is on-going. On April 6, 2011, the Milwaukee County Circuit Court rendered a decision in which it concluded that Merge and Mortimore had entered into an oral employment contract on or about June 15, 2006, but the Court did not make any decision as to damages, which damages would be addressed in a later phase of the litigation. On May 9, 2011, Merge appealed the Circuit Court’s decision. On September 18, 2012, the Appellate Court issued its decision reversing the trial court and determined that Mortimore must arbitrate his disputes with Merge. We have retained litigation counsel, intend to continue to defend this action vigorously and have filed a counterclaim for fraud, among other claims, against both Mortimore and Noshay. We believe it is reasonably possible that we may incur a loss with respect to this matter; however, at this stage of the proceedings, it is not possible for management to reasonably estimate the amount of any potential loss.
In January and February 2010, purported stockholder class action complaints were filed in the Superior Court of Suffolk County, Massachusetts in connection with AMICAS Inc.’s (AMICAS) proposed acquisition by a third party. In March 2010, because AMICAS had terminated the merger agreement with that third party and agreed to be acquired by Merge, the Court dismissed the plaintiffs’ claims as moot. Subsequently, plaintiffs’ counsel filed an application for approximately $5,000 of attorneys’ fees. AMICAS opposed the fee petition, tendered the defense to its insurers that provided coverage against such claims and retained litigation counsel to defend the matter. On December 4, 2010, the Massachusetts court awarded plaintiffs approximately $3,200 in attorneys’ fees and costs. AMICAS appealed this judgment to the Massachusetts Court of Appeals. After receipt of the Massachusetts court’s attorneys’ fee award decision, AMICAS’s insurer denied policy coverage for approximately $2,500 of the fee award and filed a declaratory judgment action to that effect against AMICAS and Merge in Federal court for the Northern District of Illinois. We contested the insurer’s denial of coverage, asserted our rights under the applicable insurance policies and filed a counterclaim against the insurer seeking full payment of the Massachusetts court’s fee award, plus additional damages. On April 30, 2012, the Illinois Federal court ruled in favor of our motion for summary judgment, which decision was appealed by the insurer to the United States Seventh Circuit Court of Appeals. That appeal, which has been briefed and argued by the parties, is pending. In late February, 2013, the insurer settled the Massachusetts court case by agreeing to pay $2,990 to plaintiffs’ counsel and further agreeing not to pursue AMICAS or Merge for any portion of the amount paid. We believe that the Massachusetts settlement has rendered moot the Seventh Circuit appeal, except for the insurer’s claim to reimbursement for a portion of the fees it advanced in the Massachusetts appeal, which we believe is less than $150 and with respect to Merge’s claims for additional damages from the insurer. As a result of the Massachusetts settlement, we anticipate recognizing a contingent gain, if not all, of our recorded liability of $2,500 to other, net in our statement of operations with respect to these matters in the first quarter of 2013 based on the February 27, 2013 appellate court dismissal date.
On February 1, 2010, Merge filed a complaint against its former CEO, Richard Linden, and its former CFO, Scott Veech, in the U.S. District Court for the Eastern District of Wisconsin, seeking a declaration that we do not have to indemnify either Mr. Linden or Mr. Veech for liabilities they incurred in connection with an SEC investigation and enforcement actions and various securities fraud and shareholder derivative litigation. Merge also sought to recover from both defendants all costs incurred by Merge associated with defending Mr. Linden and Mr. Veech in those prior actions. On October 15, 2010, the Court concluded that it did not have subject matter jurisdiction over Merge’s claims and dismissed the claims in their entirety. The Court rendered no opinion on the merits of Merge’s claims. On February 8, 2011, Merge filed a complaint in the U.S. District Court for the Eastern District of Wisconsin captioned Merge Healthcare Incorporated v. Richard Linden, Case no. 11-CV-001541. On May 4, 2011, Merge and Mr. Linden entered into a confidential settlement agreement resolving all claims against Mr. Linden and through which Linden agreed to issue a statement of regret and apology to Merge’s Board of Directors and reimburse Merge for a portion of the legal fees to defend Mr. Linden in prior legal actions. Merge believes that it has numerous meritorious claims against Mr. Veech, which have not been affected by the settlement with Mr. Linden. We believe that the likelihood of a loss with respect to this matter is remote. Based on the terms of the status of this proceeding, we have determined that this litigation is not currently a material legal proceeding. Accordingly, we do not intend to make disclosures about this proceeding in its future periodic filings.
In August, 2010, Merge Healthcare was sued in the Northern District of Texas by the Court-appointed receiver for Stanford International Bank, Ltd. The receiver alleges that Merge was a recipient of a fraudulent conveyance as a result of a Ponzi scheme orchestrated by Robert Stanford and Stanford International Bank, Ltd. (SIBL). Merge is not alleged to have participated in the Ponzi scheme. The receiver’s claims arise from the failed acquisition of Emageon, Inc. (Emageon) by Health Systems Solutions, Inc. (HSS), an affiliate of SIBL, in February 2009, which resulted in the payment of a $9,000 break-up fee by HSS, which payment is alleged to have been financed by SIBL. Merge subsequently acquired Emageon as part of our AMICAS acquisition. The complaint seeks to recover the $9,000 payment to Emageon, plus interest, costs, and attorneys’ fees. We have retained litigation counsel and intend to vigorously defend this action. We have filed a motion to dismiss the complaint. That motion has been fully briefed, and we are awaiting a decision from the Court. We believe it is reasonably possible that we may incur a loss with respect to this matter. The potential loss may lie in a range from zero to the full amount claimed, plus interest.
In September, 2012, Merge Healthcare was sued in the Middle District of North Carolina by Heart Imaging Technologies, LLC (HIT). HIT alleges that certain features of products within our Image Interoperability Platform that collectively are expected to represent less than 5% of our net sales during 2013 infringe three of HIT’s patents related to internet-based image viewing. The complaint seeks equitable relief and damages for patent infringement. We have retained litigation counsel and intend to vigorously defend this action. HIT has filed a Motion for a Temporary Injunction that, if granted would prohibit Merge from selling the applicable products. The parties are in the process of briefing on the Motion, which is not expected to be decided for several months. We believe it is reasonably possible that we may incur a loss with respect to this matter; however, at this stage of the proceedings, it is not possible for management to reasonably estimate the amount of any potential loss.
In addition to the matters discussed above, we are involved in various legal matters that are in the process of litigation or settled in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, we believe that the ultimate resolution of all such matters and claims will not have a material adverse effect on Merge’s financial condition. Professional legal fees are expensed when incurred. We accrue for contingent losses when such losses are probable and reasonably estimable. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. Should we fail to prevail in any legal matter or should several legal matters be resolved against us in the same reporting period, such matters could have a material adverse effect on our operating results and cash flows for that particular period.
Guarantees
We assumed a guarantee to a lender on behalf of a customer. At December 31, 2012, the balance outstanding on the loan was approximately $216.
(11)
|
Transactions with Related Party
|
Merrick RIS, LLC (Merrick) and its affiliates, including Merrick Ventures, LLC (Merrick Ventures), beneficially own, as of December 31, 2012, approximately 31% of our outstanding common stock. Michael W. Ferro, Jr., our Chairman of the Board, and trusts for the benefit of Mr. Ferro’s family members beneficially own a majority of the equity interest in Merrick. Mr. Ferro also serves as the chairman and chief executive officer of Merrick and the chairman and chief executive officer of Merrick Ventures. Accordingly, Mr. Ferro indirectly owns or controls all of the shares of our common stock owned by Merrick and Merrick Ventures. Due to its stock ownership, Merrick has significant influence over our business, including the election of our directors.
Effective January 1, 2009, we entered into a consulting agreement with Merrick. Services provided by Merrick under the consulting agreement include financial analysis and strategic planning. Effective January 1, 2010, we entered into an amendment to extend the term of the consulting agreement with Merrick through December 31, 2011, and modified the payment terms from a flat fee arrangement per quarter to a per transaction or success based arrangement. On February 24, 2012, we entered into a second amendment, effective January 3, 2012, to extend the term of the consulting agreement with Merrick through December 31, 2013, and modified the fee structure to include a quarterly retainer in the amount of $150. This is in addition to the per transaction or success based arrangement that exists. Further, the second amendment includes a modification of the success payment in the event of a sale, by including a payment of 2% of the total consideration received if the total consideration is greater than $1 billion (the agreement still allows for a 1% success fee if under $1 billion). We paid $1,069, $1,348 and $2,039 to Merrick for such services and recognized $976, $1,176 and $2,338 in acquisition related and general and administrative expenses in 2012, 2011 and 2010, respectively. As of December 31, 2012 and December 31, 2011, we had $38 and $132, respectively, recorded in accounts payable covering obligations under this agreement.
On July 30, 2010, we acquired substantially all of the Olivia Greets assets from Merrick Healthcare Solutions, LLC (Merrick Healthcare), an affiliate of Merrick Ventures, for 500,000 shares of our common stock. Merrick Healthcare transferred these shares of common stock to Merrick Ventures after the expiration of the one-year trading restriction. As a result of the Olivia Greets acquisition, the value-added reseller agreements that we entered into with Merrick Healthcare in March 2009 and March 2010 were terminated.
On June 20, 2011, Merrick purchased $5,000 of the $52,000 of additional Notes that we issued on June 20, 2011. Merrick purchased the Notes at the same purchase price per Note as the other investors in the transaction. We used the proceeds from this private placement of additional Notes to redeem and retire all outstanding shares of our Series A Preferred Stock, including $11,755 to redeem and retire the 10,000 shares of our Series A Preferred Stock held by Merrick.
Merrick Ventures owns over 75% of the outstanding equity interest of an entity called higi llc (higi). Mr. Ferro is higi’s Chairperson and Founder. In December 2011, we entered into a master services agreement with higi, pursuant to which we agreed to provide higi with certain professional services, including software engineering design, application and web portal development for a fixed payment of $675. We recognized $155 and $506 in revenue in 2012 and 2011 and were paid $490 in 2011 under this Agreement. In addition, the master services agreement granted higi certain branding rights related to our health station business and requires higi to pay a fixed annual fee of one hundred dollars per station to us for each station that is branded with higi’s trademarks and that includes higi’s software, images and/or other intellectual property. The agreement has an initial term of one year, with continuing renewal rights, and is subject to termination on 120 days notice from us. On March 28, 2012, we entered into an agreement to sell 500 health stations and related equipment to higi for $2,750. We recognized revenue of $2,750 in 2012.
On February 24, 2012, we entered into an Assignment Agreement with Merrick Ventures under which Merge will sublease from Merrick approximately 4,700 square feet located at 200 E. Randolph Street, 22nd floor, Chicago, IL at an annual rental rate of $78, terminating on December 13, 2013. The rent will be paid to Merrick monthly and is exactly the same rate as Merrick currently pays under its lease. Under the Assignment, Merge will also pay approximately $70 (which represents the book value) for all fixtures, leasehold improvements and furniture located in the space.
Components of income (loss) before income taxes in 2012, 2011 and 2010 are as follows:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
United States
|
|
$
|
(32,231
|
)
|
|
$
|
(7,976
|
)
|
|
$
|
(31,282
|
)
|
Foreign
|
|
|
7,502
|
|
|
|
6,110
|
|
|
|
6,120
|
|
|
|
$
|
(24,729
|
)
|
|
$
|
(1,866
|
)
|
|
$
|
(25,162
|
)
|
The provision for income taxes consists of the following in 2012, 2011 and 2010:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(4,191
|
)
|
|
$
|
(111
|
)
|
State
|
|
|
482
|
|
|
|
(287
|
)
|
|
|
320
|
|
Foreign
|
|
|
28
|
|
|
|
35
|
|
|
|
201
|
|
Total current
|
|
|
510
|
|
|
|
(4,443
|
)
|
|
|
410
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
925
|
|
|
|
5,636
|
|
|
|
(2
|
)
|
State
|
|
|
279
|
|
|
|
425
|
|
|
|
-
|
|
Foreign
|
|
|
2,377
|
|
|
|
2,047
|
|
|
|
(14,054
|
)
|
Total deferred
|
|
|
3,581
|
|
|
|
8,108
|
|
|
|
(14,056
|
)
|
Total provision
|
|
$
|
4,091
|
|
|
$
|
3,665
|
|
|
$
|
(13,646
|
)
|
Actual income taxes varied from the expected income taxes (computed by applying the statutory income tax rate of 35% for the years ended December 31, 2012, 2011 and 2010 to income before income taxes) as a result of the following:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Expected tax benefit
|
|
$
|
(8,655
|
)
|
|
$
|
(653
|
)
|
|
$
|
(8,807
|
)
|
Total increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance allocated to income tax expense
|
|
|
13,987
|
|
|
|
10,641
|
|
|
|
(9,673
|
)
|
Research and experimentation credit
|
|
|
-
|
|
|
|
-
|
|
|
|
(78
|
)
|
Share-based compensation
|
|
|
38
|
|
|
|
24
|
|
|
|
83
|
|
Acquisition costs
|
|
|
309
|
|
|
|
(684
|
)
|
|
|
3,386
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
(672
|
)
|
|
|
(212
|
)
|
|
|
435
|
|
Foreign income tax rate differential
|
|
|
(723
|
)
|
|
|
(463
|
)
|
|
|
(212
|
)
|
Change in unrecognized tax benefits
|
|
|
167
|
|
|
|
(4,669
|
)
|
|
|
241
|
|
Other
|
|
|
(360
|
)
|
|
|
(319
|
)
|
|
|
979
|
|
Actual income tax expense (benefit)
|
|
$
|
4,091
|
|
|
$
|
3,665
|
|
|
$
|
(13,646
|
)
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are presented as follows:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
162
|
|
|
$
|
611
|
|
Bad Debt
|
|
|
3,844
|
|
|
|
854
|
|
Depreciation
|
|
|
2,703
|
|
|
|
2,775
|
|
Research and experimentation credit carryforwards
|
|
|
6,951
|
|
|
|
7,324
|
|
Other credit carryforwards
|
|
|
1,566
|
|
|
|
1,476
|
|
Domestic loss carryforwards
|
|
|
115,421
|
|
|
|
113,459
|
|
Foreign loss carryforwards
|
|
|
8,007
|
|
|
|
9,652
|
|
Nonqualified stock options
|
|
|
5,374
|
|
|
|
3,450
|
|
Other
|
|
|
5,576
|
|
|
|
4,967
|
|
Total gross deferred tax assets
|
|
|
149,604
|
|
|
|
144,568
|
|
Less: asset valuation allowance
|
|
|
(121,117
|
)
|
|
|
(105,743
|
)
|
Net deferred tax asset
|
|
|
28,487
|
|
|
|
38,825
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Software development costs and intangible assets
|
|
|
(7,572
|
)
|
|
|
(8,439
|
)
|
Intangibles—customer contracts & tradenames
|
|
|
(8,680
|
)
|
|
|
(14,223
|
)
|
Other
|
|
|
(5,105
|
)
|
|
|
(5,452
|
)
|
Total gross deferred liabilities
|
|
|
(21,357
|
)
|
|
|
(28,114
|
)
|
Net deferred tax asset
|
|
$
|
7,130
|
|
|
$
|
10,711
|
|
Included on balance sheet:
|
|
|
|
|
|
|
|
|
Current assets: deferred income taxes
|
|
$
|
3,135
|
|
|
$
|
3,393
|
|
Non–current asset: deferred income taxes
|
|
|
7,041
|
|
|
|
9,209
|
|
Non–current liabilities: deferred income taxes
|
|
|
(3,046
|
)
|
|
|
(1,891
|
)
|
Net deferred income taxes
|
|
$
|
7,130
|
|
|
$
|
10,711
|
|
At December 31, 2012, we had U.S. federal net operating loss, capital loss, research credit, alternative minimum tax credit, and foreign tax credit carryforwards of $292,370, $3,605, $4,911, $977, and $297, respectively, state net operating loss, capital loss and research credit carryforwards of $172,632, $3,605 and $408, respectively, foreign federal and provincial net operating loss carryforwards of $27,587 and $20,694, respectively, foreign and provincial capital loss carryforwards of $5,657 and $5,657, respectively, and foreign federal and provincial research credit carryforwards of $2,008 and $291, respectively. The U.S. federal net operating loss, research credit and foreign tax credit carryforwards expire in varying amounts beginning in 2015 and continuing through 2032, 2030 and 2018, respectively. The state net operating loss carryforwards expire in varying amounts beginning in 2013, and continuing through 2032 and the credit carryforwards expire in varying amounts beginning 2020 and continuing through 2023. The U.S. federal and state capital loss carryforwards will expire in 2013. The foreign tax credits expire in varying amounts beginning in 2018, and continuing through 2024. The foreign federal and provincial net operating loss carryforwards expire in varying amounts beginning in 2013, and continuing through 2030. Foreign and provincial capital losses may be carried forward indefinitely.
Management has an obligation to review, at least annually, the components of our deferred tax assets. This review is to ascertain that, based upon the information available at the time of the preparation of financial statements, it is more likely than not, that we expect to utilize these future deductions and credits. In the event that management determines that it is more likely than not these future deductions, or credits, will not be utilized, a valuation allowance is recorded, reducing the deferred tax asset to the amount expected to be realized.
Management’s analysis for 2012 resulted in a valuation allowance of $121,117 at December 31, 2012. Based on both quantitative and qualitative factors, we record a valuation allowance for all jurisdictions except Canada. In 2010, we reversed $14,054 in valuation allowance related to almost all of the deferred tax assets of our Canadian operations. We considered the effect of U.S. Internal Revenue Code (Code) Section 382 on our ability to utilize existing U.S. net operating loss and tax credit carryforwards. Section 382 imposes limits on the amount of tax attributes that can be utilized where there has been an ownership change as defined under the Code. Almost all of our U.S. and state net operating loss, capital loss and credit carryforwards are subject to future limitation. The future limitation is in addition to any past limitations applicable to the net operating loss and credit carryforwards of previously acquired businesses. While application of Section 382 is complex, we currently estimate deferred tax assets of $24,946 related to U.S. net operating loss, capital loss and research tax credit carryforwards may be unrealizable due to Section 382 limitations. We have recorded a full valuation reserve for these deferred tax assets.
The net increase in the valuation allowance in 2012, 2011, and 2010 was $15,374, $4,358, and $31,830, respectively. The 2012 increase was primarily attributable to valuation allowances established in connection with current year net operating losses and other deferred tax assets.
There exist potential tax benefits for us associated with stock-based compensation. At December 31, 2012 and 2011, we had $1,638 and $1,514, respectively, of excess tax benefits related to vesting of restricted stock awards, nonqualified stock option exercises and disqualifying dispositions of employee incentive stock options. The income tax benefit related to excess tax benefits of stock-based compensation will be credited to paid-in-capital, when recognized, by reducing taxes payable.
The total amount of unrecognized tax benefits as of December 31, 2012, 2011 and 2010 was $2,109, $1,862, and $6,703, respectively. We recognize interest and penalties in the provision for income taxes. Total accrued interest and penalties as of December 31, 2012 were $162 and $102, respectively. Total accrued interest and penalties as of December 31, 2011 were $142 and $54, respectively. Total interest included in tax expense in 2012, 2011 and 2010 were $19, $(111), and $40, respectively. Total penalties included in tax expense in 2012, 2011 and 2010 were $ 48, $(3), and $1, respectively.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits in 2012, 2011 and 2010:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Balance at January 1
|
|
$
|
1,862
|
|
|
$
|
6,703
|
|
|
$
|
6,506
|
|
Gross increases - tax positions in current year
|
|
|
55
|
|
|
|
-
|
|
|
|
19
|
|
Gross increases - tax positions in prior year
|
|
|
192
|
|
|
|
-
|
|
|
|
178
|
|
Gross decreases - tax positions in prior year
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
-
|
|
Decreases due to statute expirations
|
|
|
-
|
|
|
|
(4,829
|
)
|
|
|
-
|
|
Balance at December 31
|
|
$
|
2,109
|
|
|
$
|
1,862
|
|
|
$
|
6,703
|
|
The total amount of unrecognized tax benefits at December 31, 2012 and December 31, 2011 that, if recognized, would affect the effective tax rate is $1,948 and $1,785, respectively. We do not expect a significant change in unrecognized tax benefits within the next twelve months.
We file income tax returns in the U.S., various states and foreign jurisdictions. During the year we completed a taxing authority examination of our 2008 and 2009 Canadian tax return without significant adjustment. We are not currently under examination in the U.S. federal taxing jurisdictions for which years ending after 2008 remain subject to examination. Years prior to 2009 remain subject to examination to the extent net operating loss and tax credit carryforwards have been utilized after 2008, or remain subject to carryforward.
We indefinitely reinvest any undistributed profits of our non-U.S. subsidiaries. Through year-end our non-U.S. subsidiaries have cumulative deficits.
Basic and diluted net earnings or loss per share is computed by dividing earnings or loss available to common shareholders by the weighted average number of shares of common stock outstanding. Earnings or loss available to common shareholders is computed as net income or loss less the 15% cumulative annual compounding dividend earned by preferred shareholders. The computation of earnings or loss available to common shareholders is presented in our condensed consolidated statements of operations. Diluted earnings per share includes the dilution that could occur based on outstanding restricted stock awards and the potential exercise of stock options, except for stock options with an exercise price of more than the average market price of our common stock, as such exercise would be anti-dilutive.
In 2012, 2011, and 2010, options to purchase 4,579,300, 941,556, and 3,509,110 shares of our Common Stock, respectively, had exercise prices greater than the average market price of our common stock, and, therefore, are not included in the calculations of diluted net income (loss) per share.
As a result of the losses in 2012, 2011 and 2010, incremental shares from the assumed conversion of employee stock options totaling 7,593,152, 8,249,478, and 4,450,000 shares, respectively, have been excluded from the calculation of diluted loss per share as their inclusion would have been anti-dilutive.
Potentially dilutive Common Stock equivalent securities, including securities that may be considered in the calculation of diluted earnings per share outstanding as of December 31, 2012, 2011 and 2010 were 12,172,452, 9,191,034, and 7,959,110, respectively.
(14)
|
Employee Benefit Plan
|
We maintain defined contribution retirement plans (a 401(k) profit sharing plan for the U.S. employees and Registered Retirement Saving Plan (RRSP) for the Canadian employees), covering employees who meet the minimum service requirements and have elected to participate. We made matching contributions (under the 401(k) profit sharing plan for the U.S. employees and Deferred Profit Sharing Plan (DPSP) for the Canadian employees) equal to a maximum of 3.0% in 2012, 2011 and 2010. Our matching contributions totaled $1,225, $1,905, and $993, in 2012, 2011, and 2010, respectively.
(15)
|
Segment Information and Concentrations of Risk
|
In the second quarter of 2012, we realigned our business into two operating groups to provide better focus on our two primary end users, providers and consumers. Our Merge Healthcare operating group, which represents about 87% of our total revenue in 2012, markets, sells and implements interoperability, imaging and clinical solutions to healthcare providers. Our Merge DNA (Data and Analytics) operating group represents the remaining revenue and focuses on the emergence of consumerism in healthcare, including health stations, clinical trials software and other consumer-focused solutions. As a result of this change, effective in the second quarter of 2012, we have two reportable operating segments. The information for 2011 and 2010 has been restated to conform to our two reportable operating segments.
We evaluate the performance of these operating groups based on their respective revenues and operating income, which exclude public company costs, certain corporate costs (amortization expense that is not specific to a segment), net interest expense and income taxes.
The following tables present operating group financial information for the periods indicated.
|
|
Year ended December 31, 2012
|
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Total
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Software and other
|
|
$
|
78,941
|
|
|
$
|
15,525
|
|
|
$
|
94,466
|
|
Professional Services
|
|
|
27,552
|
|
|
|
13,426
|
|
|
|
40,978
|
|
Maintenance and EDI
|
|
|
110,894
|
|
|
|
2,566
|
|
|
|
113,460
|
|
Total net sales
|
|
$
|
217,387
|
|
|
$
|
31,517
|
|
|
$
|
248,904
|
|
Expenses
|
|
|
192,408
|
|
|
|
33,315
|
|
|
|
225,723
|
|
Segment income (loss)
|
|
$
|
24,979
|
|
|
$
|
(1,798
|
)
|
|
|
23,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net corporate/other expenses (1)
|
|
|
|
|
|
|
|
|
|
|
47,910
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(24,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Total
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and other
|
|
$
|
76,947
|
|
|
$
|
4,001
|
|
|
$
|
80,948
|
|
Professional Services
|
|
|
23,437
|
|
|
|
18,468
|
|
|
|
41,905
|
|
Maintenance and EDI
|
|
|
109,562
|
|
|
|
13
|
|
|
|
109,575
|
|
Total net sales
|
|
$
|
209,946
|
|
|
$
|
22,482
|
|
|
$
|
232,428
|
|
Expenses
|
|
|
166,898
|
|
|
|
20,406
|
|
|
|
187,304
|
|
Segment income (loss)
|
|
$
|
43,048
|
|
|
$
|
2,076
|
|
|
|
45,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net corporate/other expenses (1)
|
|
|
|
|
|
|
|
|
|
|
46,990
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Total
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and other
|
|
$
|
42,379
|
|
|
$
|
41
|
|
|
$
|
42,420
|
|
Professional Services
|
|
|
13,183
|
|
|
|
9,992
|
|
|
|
23,175
|
|
Maintenance and EDI
|
|
|
74,737
|
|
|
|
-
|
|
|
|
74,737
|
|
Total net sales
|
|
$
|
130,299
|
|
|
$
|
10,033
|
|
|
$
|
140,332
|
|
Expenses
|
|
|
118,179
|
|
|
|
10,808
|
|
|
|
128,987
|
|
Segment income (loss)
|
|
$
|
12,120
|
|
|
$
|
(775
|
)
|
|
|
11,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net corporate/other expenses (1)
|
|
|
|
|
|
|
|
|
|
|
36,507
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(25,162
|
)
|
|
(1)
|
Net corporate/other expenses include public company costs, corporate administration expenses, amortization expense which is not attributable to business segments, acquisition-related expenses and net interest expense.
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Corporate/ Other
|
|
|
Consolidated
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2012
|
|
$
|
16,049
|
|
|
$
|
4,187
|
|
|
$
|
59
|
|
|
$
|
20,295
|
|
Restructuring and Other One Time Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2012
|
|
$
|
333
|
|
|
$
|
497
|
|
|
$
|
-
|
|
|
$
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets as of December 31, 2012
|
|
$
|
412,841
|
|
|
$
|
33,207
|
|
|
$
|
(9,195
|
)
|
|
$
|
436,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Corporate/ Other
|
|
|
Consolidated
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
$
|
19,311
|
|
|
$
|
2,165
|
|
|
$
|
732
|
|
|
$
|
22,208
|
|
Restructuring and Other One Time Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
$
|
1,216
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets as of December 31, 2011
|
|
$
|
354,442
|
|
|
$
|
47,722
|
|
|
$
|
48,223
|
|
|
$
|
450,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
DNA
|
|
|
Corporate/ Other
|
|
|
Consolidated
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
$
|
15,702
|
|
|
$
|
1,820
|
|
|
$
|
290
|
|
|
$
|
17,812
|
|
Restructuring and Other One Time Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
$
|
4,578
|
|
|
$
|
10
|
|
|
$
|
418
|
|
|
$
|
5,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets as of December 31, 2010
|
|
$
|
326,037
|
|
|
$
|
29,764
|
|
|
$
|
40,844
|
|
|
$
|
396,645
|
|
Foreign sales account for approximately 6%, 9%, and 10% of our net sales in 2012, 2011, and 2010, respectively, and sales in foreign currency represented approximately 3%, 2%, and 1%, respectively, of our net sales in 2012, 2011 and 2010.
The following tables present certain geographic information, based on location of customer:
|
|
Net Sales for the Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
United States of America
|
|
$
|
232,848
|
|
|
$
|
211,907
|
|
|
$
|
125,974
|
|
Europe
|
|
|
8,687
|
|
|
|
8,767
|
|
|
|
7,730
|
|
Japan
|
|
|
2,190
|
|
|
|
5,312
|
|
|
|
2,853
|
|
Korea
|
|
|
1,018
|
|
|
|
1,449
|
|
|
|
718
|
|
Canada
|
|
|
1,707
|
|
|
|
1,598
|
|
|
|
491
|
|
Other
|
|
|
2,454
|
|
|
|
3,395
|
|
|
|
2,566
|
|
Total Net Sales
|
|
$
|
248,904
|
|
|
$
|
232,428
|
|
|
$
|
140,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Lived Assets
|
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
2010
|
|
United States of America
|
|
|
4,316
|
|
|
|
3,866
|
|
|
|
5,105
|
|
Canada
|
|
|
569
|
|
|
|
520
|
|
|
|
606
|
|
Europe
|
|
|
79
|
|
|
|
3
|
|
|
|
56
|
|
Other
|
|
|
-
|
|
|
|
2
|
|
|
|
5
|
|
Total
|
|
$
|
4,964
|
|
|
$
|
4,391
|
|
|
$
|
5,772
|
|
(16)
|
Guarantor Subsidiaries
|
The obligations under the Notes are fully and unconditionally guaranteed (except for certain release provisions including any sale or other disposition of all or substantially all of the assets of that guarantor, any sale or other disposition of the capital stock of that guarantor, if we designate any restricted subsidiary that is a guarantor to be an unrestricted subsidiary and upon legal defeasance of satisfaction and discharge of the indenture, which are considered customary), jointly and severally, by all of our current and future 100% owned domestic restricted subsidiaries (Guarantors). No other subsidiaries guarantee the Notes. The Notes and guarantees are secured by a first-priority lien on certain collateral which comprises substantially all of the Parent and Guarantors’ tangible and intangible assets, subject to certain exceptions. The following tables present the balance sheets, statements of operations and statements of cash flows of the Parent, Guarantor and Non-Guarantor entities along with the eliminations necessary to arrive at the information on a consolidated basis.
General corporate expenses, including public company costs, certain amortization, corporate administration costs, acquisition-related expenses and net interest expense are included in the results of the Parent.
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
December 31, 2012
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including restricted cash)
|
|
$
|
862
|
|
|
$
|
32,012
|
|
|
$
|
3,001
|
|
|
$
|
0
|
|
|
$
|
35,875
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
61,871
|
|
|
|
10,194
|
|
|
|
-
|
|
|
|
72,065
|
|
Intercompany receivables
|
|
|
1,142
|
|
|
|
48,418
|
|
|
|
799
|
|
|
|
(50,359
|
)
|
|
|
-
|
|
Other current assets
|
|
|
2,668
|
|
|
|
29,337
|
|
|
|
3,702
|
|
|
|
-
|
|
|
|
35,707
|
|
Total current assets
|
|
|
4,672
|
|
|
|
171,638
|
|
|
|
17,696
|
|
|
|
(50,359
|
)
|
|
|
143,647
|
|
Net property and equipment
|
|
|
130
|
|
|
|
4,187
|
|
|
|
648
|
|
|
|
-
|
|
|
|
4,964
|
|
Purchased and developed software, net
|
|
|
-
|
|
|
|
18,508
|
|
|
|
499
|
|
|
|
-
|
|
|
|
19,007
|
|
Other intangible assets, net
|
|
|
-
|
|
|
|
35,025
|
|
|
|
603
|
|
|
|
-
|
|
|
|
35,628
|
|
Goodwill
|
|
|
-
|
|
|
|
212,908
|
|
|
|
1,404
|
|
|
|
-
|
|
|
|
214,312
|
|
Investment in and advances to subsidiaries
|
|
|
345,364
|
|
|
|
(868
|
)
|
|
|
-
|
|
|
|
(344,496
|
)
|
|
|
-
|
|
Other assets
|
|
|
5,957
|
|
|
|
5,745
|
|
|
|
7,593
|
|
|
|
-
|
|
|
|
19,295
|
|
Total assets
|
|
$
|
356,123
|
|
|
$
|
447,143
|
|
|
$
|
28,443
|
|
|
$
|
(394,855
|
)
|
|
$
|
436,853
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,509
|
|
|
$
|
21,839
|
|
|
$
|
1,090
|
|
|
$
|
-
|
|
|
$
|
24,438
|
|
Deferred revenue
|
|
|
-
|
|
|
|
50,716
|
|
|
|
1,639
|
|
|
|
-
|
|
|
|
52,355
|
|
Intercompany payables
|
|
|
20,008
|
|
|
|
13,369
|
|
|
|
17,037
|
|
|
|
(50,414
|
)
|
|
|
-
|
|
Other accrued liabilities
|
|
|
4,352
|
|
|
|
18,168
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
23,653
|
|
Total current liabilities
|
|
|
25,869
|
|
|
|
104,092
|
|
|
|
20,899
|
|
|
|
(50,414
|
)
|
|
|
100,446
|
|
Notes payable
|
|
|
250,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,046
|
|
Other long-term liabilities
|
|
|
2,747
|
|
|
|
5,518
|
|
|
|
635
|
|
|
|
-
|
|
|
|
8,900
|
|
Total liabilities
|
|
|
278,662
|
|
|
|
109,610
|
|
|
|
21,534
|
|
|
|
(50,414
|
)
|
|
|
359,392
|
|
Total shareholders' equity
|
|
|
77,461
|
|
|
|
337,532
|
|
|
|
6,909
|
|
|
|
(344,441
|
)
|
|
|
77,461
|
|
Total liabilities and shareholders' equity
|
|
$
|
356,123
|
|
|
$
|
447,143
|
|
|
$
|
28,443
|
|
|
$
|
(394,855
|
)
|
|
$
|
436,853
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
December 31, 2011
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including restricted cash)
|
|
$
|
5,451
|
|
|
$
|
28,003
|
|
|
$
|
5,818
|
|
|
$
|
-
|
|
|
$
|
39,272
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
63,487
|
|
|
|
7,527
|
|
|
|
-
|
|
|
|
71,014
|
|
Intercompany receivables
|
|
|
-
|
|
|
|
29,108
|
|
|
|
635
|
|
|
|
(29,743
|
)
|
|
|
-
|
|
Other current assets
|
|
|
595
|
|
|
|
29,579
|
|
|
|
3,814
|
|
|
|
-
|
|
|
|
33,988
|
|
Total current assets
|
|
|
6,046
|
|
|
|
150,177
|
|
|
|
17,794
|
|
|
|
(29,743
|
)
|
|
|
144,274
|
|
Net property and equipment
|
|
|
113
|
|
|
|
3,753
|
|
|
|
525
|
|
|
|
-
|
|
|
|
4,391
|
|
Purchased and developed software, net
|
|
|
-
|
|
|
|
23,309
|
|
|
|
615
|
|
|
|
-
|
|
|
|
23,924
|
|
Other intangible assets, net
|
|
|
-
|
|
|
|
44,483
|
|
|
|
669
|
|
|
|
-
|
|
|
|
45,152
|
|
Goodwill
|
|
|
-
|
|
|
|
207,799
|
|
|
|
2,030
|
|
|
|
-
|
|
|
|
209,829
|
|
Investment in and advances to subsidiaries
|
|
|
340,637
|
|
|
|
(338
|
)
|
|
|
-
|
|
|
|
(340,299
|
)
|
|
|
-
|
|
Other assets
|
|
|
8,013
|
|
|
|
4,597
|
|
|
|
9,835
|
|
|
|
372
|
|
|
|
22,817
|
|
Total assets
|
|
$
|
354,809
|
|
|
$
|
433,780
|
|
|
$
|
31,468
|
|
|
$
|
(369,670
|
)
|
|
$
|
450,387
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,124
|
|
|
$
|
17,647
|
|
|
$
|
1,343
|
|
|
$
|
-
|
|
|
$
|
22,114
|
|
Deferred revenue
|
|
|
-
|
|
|
|
49,678
|
|
|
|
1,568
|
|
|
|
-
|
|
|
|
51,246
|
|
Intercompany payables
|
|
|
2,176
|
|
|
|
8,580
|
|
|
|
24,086
|
|
|
|
(34,842
|
)
|
|
|
-
|
|
Other accrued liabilities
|
|
|
4,921
|
|
|
|
18,729
|
|
|
|
1,244
|
|
|
|
-
|
|
|
|
24,894
|
|
Total current liabilities
|
|
|
10,221
|
|
|
|
94,634
|
|
|
|
28,241
|
|
|
|
(34,842
|
)
|
|
|
98,254
|
|
Notes payable
|
|
|
249,371
|
|
|
|
67
|
|
|
|
-
|
|
|
|
-
|
|
|
|
249,438
|
|
Other long-term liabilities
|
|
|
2,746
|
|
|
|
6,381
|
|
|
|
725
|
|
|
|
372
|
|
|
|
10,224
|
|
Total liabilities
|
|
|
262,338
|
|
|
|
101,082
|
|
|
|
28,966
|
|
|
|
(34,470
|
)
|
|
|
357,916
|
|
Total shareholders' equity
|
|
|
92,471
|
|
|
|
332,698
|
|
|
|
2,502
|
|
|
|
(335,200
|
)
|
|
|
92,471
|
|
Total liabilities and shareholders' equity
|
|
$
|
354,809
|
|
|
$
|
433,780
|
|
|
$
|
31,468
|
|
|
$
|
(369,670
|
)
|
|
$
|
450,387
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
Year Ended December 31, 2012
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
225,662
|
|
|
$
|
23,242
|
|
|
$
|
-
|
|
|
$
|
248,904
|
|
Cost of sales
|
|
|
-
|
|
|
|
104,117
|
|
|
|
3,934
|
|
|
|
-
|
|
|
|
108,051
|
|
Gross margin
|
|
|
-
|
|
|
|
121,545
|
|
|
|
19,308
|
|
|
|
-
|
|
|
|
140,853
|
|
Selling, research and development, general and administrative expenses
|
|
|
12,532
|
|
|
|
92,670
|
|
|
|
13,491
|
|
|
|
-
|
|
|
|
118,693
|
|
Acquisition-related expenses
|
|
|
3,402
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,402
|
|
Restructuring and other expenses
|
|
|
-
|
|
|
|
425
|
|
|
|
405
|
|
|
|
-
|
|
|
|
830
|
|
Depreciation and amortization
|
|
|
59
|
|
|
|
10,990
|
|
|
|
259
|
|
|
|
-
|
|
|
|
11,308
|
|
Total operating costs and expenses
|
|
|
15,993
|
|
|
|
104,085
|
|
|
|
14,155
|
|
|
|
-
|
|
|
|
134,233
|
|
Operating income (loss)
|
|
|
(15,993
|
)
|
|
|
17,460
|
|
|
|
5,153
|
|
|
|
-
|
|
|
|
6,620
|
|
Equity in net income of subsidiaries
|
|
|
9,689
|
|
|
|
(2,507
|
)
|
|
|
-
|
|
|
|
(7,182
|
)
|
|
|
-
|
|
Other, net
|
|
|
(22,515
|
)
|
|
|
(10,395
|
)
|
|
|
1,561
|
|
|
|
-
|
|
|
|
(31,349
|
)
|
Other income (expense)
|
|
|
(12,826
|
)
|
|
|
(12,902
|
)
|
|
|
1,561
|
|
|
|
(7,182
|
)
|
|
|
(31,349
|
)
|
Income (loss) before income taxes
|
|
|
(28,819
|
)
|
|
|
4,558
|
|
|
|
6,714
|
|
|
|
(7,182
|
)
|
|
|
(24,729
|
)
|
Income tax expense
|
|
|
1
|
|
|
|
1,741
|
|
|
|
2,349
|
|
|
|
-
|
|
|
|
4,091
|
|
Net income (loss)
|
|
$
|
(28,820
|
)
|
|
$
|
2,817
|
|
|
$
|
4,365
|
|
|
$
|
(7,182
|
)
|
|
$
|
(28,820
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
Year Ended December 31, 2011
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
206,144
|
|
|
$
|
26,284
|
|
|
$
|
-
|
|
|
$
|
232,428
|
|
Cost of sales
|
|
|
-
|
|
|
|
83,782
|
|
|
|
4,872
|
|
|
|
-
|
|
|
|
88,654
|
|
Gross margin
|
|
|
-
|
|
|
|
122,362
|
|
|
|
21,412
|
|
|
|
-
|
|
|
|
143,774
|
|
Selling, research and development, general and administrative expenses
|
|
|
3,455
|
|
|
|
80,130
|
|
|
|
15,336
|
|
|
|
-
|
|
|
|
98,921
|
|
Acquisition-related expenses
|
|
|
1,614
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,614
|
|
Restructuring and other expenses
|
|
|
-
|
|
|
|
1,061
|
|
|
|
155
|
|
|
|
-
|
|
|
|
1,216
|
|
Depreciation and amortization
|
|
|
279
|
|
|
|
12,251
|
|
|
|
338
|
|
|
|
-
|
|
|
|
12,868
|
|
Total operating costs and expenses
|
|
|
5,348
|
|
|
|
93,442
|
|
|
|
15,829
|
|
|
|
-
|
|
|
|
114,619
|
|
Operating income (loss)
|
|
|
(5,348
|
)
|
|
|
28,920
|
|
|
|
5,583
|
|
|
|
-
|
|
|
|
29,155
|
|
Equity in net income of subsidiaries
|
|
|
30,476
|
|
|
|
(1,546
|
)
|
|
|
-
|
|
|
|
(28,930
|
)
|
|
|
-
|
|
Other, net
|
|
|
(30,889
|
)
|
|
|
(398
|
)
|
|
|
266
|
|
|
|
-
|
|
|
|
(31,021
|
)
|
Other income (expense)
|
|
|
(413
|
)
|
|
|
(1,944
|
)
|
|
|
266
|
|
|
|
(28,930
|
)
|
|
|
(31,021
|
)
|
Income (loss) before income taxes
|
|
|
(5,761
|
)
|
|
|
26,976
|
|
|
|
5,849
|
|
|
|
(28,930
|
)
|
|
|
(1,866
|
)
|
Income tax expense (benefit)
|
|
|
(230
|
)
|
|
|
1,830
|
|
|
|
2,065
|
|
|
|
-
|
|
|
|
3,665
|
|
Net income (loss)
|
|
$
|
(5,531
|
)
|
|
$
|
25,146
|
|
|
$
|
3,784
|
|
|
$
|
(28,930
|
)
|
|
$
|
(5,531
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
Year Ended December 31, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
122,001
|
|
|
$
|
18,331
|
|
|
$
|
-
|
|
|
$
|
140,332
|
|
Cost of sales
|
|
|
-
|
|
|
|
59,511
|
|
|
|
5,052
|
|
|
|
-
|
|
|
|
64,563
|
|
Gross margin
|
|
|
-
|
|
|
|
62,490
|
|
|
|
13,279
|
|
|
|
-
|
|
|
|
75,769
|
|
Selling, research and development, general and administrative expenses
|
|
|
5,819
|
|
|
|
50,634
|
|
|
|
6,320
|
|
|
|
-
|
|
|
|
62,773
|
|
Acquisition-related expenses
|
|
|
9,638
|
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,674
|
|
Restructuring and other expenses
|
|
|
418
|
|
|
|
4,575
|
|
|
|
13
|
|
|
|
-
|
|
|
|
5,006
|
|
Depreciation, amortization and impairment
|
|
|
858
|
|
|
|
5,665
|
|
|
|
317
|
|
|
|
-
|
|
|
|
6,840
|
|
Total operating costs and expenses
|
|
|
16,733
|
|
|
|
60,910
|
|
|
|
6,650
|
|
|
|
-
|
|
|
|
84,293
|
|
Operating income (loss)
|
|
|
(16,733
|
)
|
|
|
1,580
|
|
|
|
6,629
|
|
|
|
-
|
|
|
|
(8,524
|
)
|
Equity in net income of subsidiaries
|
|
|
22,502
|
|
|
|
(138
|
)
|
|
|
-
|
|
|
|
(22,364
|
)
|
|
|
-
|
|
Other, net
|
|
|
(17,097
|
)
|
|
|
106
|
|
|
|
353
|
|
|
|
-
|
|
|
|
(16,638
|
)
|
Other income (expense)
|
|
|
5,405
|
|
|
|
(32
|
)
|
|
|
353
|
|
|
|
(22,364
|
)
|
|
|
(16,638
|
)
|
Income (loss) before income taxes
|
|
|
(11,328
|
)
|
|
|
1,548
|
|
|
|
6,982
|
|
|
|
(22,364
|
)
|
|
|
(25,162
|
)
|
Income tax expense (benefit)
|
|
|
188
|
|
|
|
200
|
|
|
|
(14,034
|
)
|
|
|
-
|
|
|
|
(13,646
|
)
|
Net income (loss)
|
|
$
|
(11,516
|
)
|
|
$
|
1,348
|
|
|
$
|
21,016
|
|
|
$
|
(22,364
|
)
|
|
$
|
(11,516
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
Year Ended December 31, 2012
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(28,820
|
)
|
|
$
|
2,817
|
|
|
$
|
4,365
|
|
|
$
|
(7,182
|
)
|
|
$
|
(28,820
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
1,179
|
|
|
|
2,402
|
|
|
|
-
|
|
|
|
3,581
|
|
|
Depreciation, amortization and impairment
|
|
|
59
|
|
|
|
19,847
|
|
|
|
389
|
|
|
|
-
|
|
|
|
20,295
|
|
|
Share-based compensation
|
|
|
2,944
|
|
|
|
2,695
|
|
|
|
147
|
|
|
|
-
|
|
|
|
5,786
|
|
|
Change in contingent consideration for acquisitions
|
|
|
1,547
|
|
|
|
(167
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,380
|
|
|
Amortization of notes payable issuance costs and discount
|
|
|
2,724
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,724
|
|
|
Unrealized gain on investment
|
|
|
(486
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(486
|
)
|
|
Provision for doubtful accounts receivable and allowances, net of recoveries
|
|
|
-
|
|
|
|
12,561
|
|
|
|
(510
|
)
|
|
|
-
|
|
|
|
12,051
|
|
|
Net change in assets and liabilities (net of effects of acquisitions)
|
|
|
(3,180
|
)
|
|
|
(13,927
|
)
|
|
|
(7,227
|
)
|
|
|
7,182
|
|
|
|
(17,151
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
(25,212
|
)
|
|
|
25,006
|
|
|
|
(434
|
)
|
|
|
-
|
|
|
|
(640
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
-
|
|
|
|
(876
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(876
|
)
|
|
Investment in securities
|
|
|
-
|
|
|
|
(240
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(240
|
)
|
|
Purchases of property, equipment, and leasehold improvements
|
|
|
(75
|
)
|
|
|
(1,846
|
)
|
|
|
(253
|
)
|
|
|
-
|
|
|
|
(2,174
|
)
|
|
Intercompany advances
|
|
|
-
|
|
|
|
(17,638
|
)
|
|
|
(2,520
|
)
|
|
|
20,158
|
|
|
|
-
|
|
|
Change in restricted cash
|
|
|
(106
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(106
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
(181
|
)
|
|
|
(20,600
|
)
|
|
|
(2,773
|
)
|
|
|
20,158
|
|
|
|
(3,396
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
19,658
|
|
|
|
-
|
|
|
|
500
|
|
|
|
(20,158
|
)
|
|
|
-
|
|
|
Proceeds from exercise of options and employee stock purchase plan
|
|
|
1,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,039
|
|
|
Principal payments on notes
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
(37
|
)
|
|
Principal payments on capital leases
|
|
|
-
|
|
|
|
(396
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(396
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
20,697
|
|
|
|
(396
|
)
|
|
|
463
|
|
|
|
(20,158
|
)
|
|
|
606
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
(73
|
)
|
|
|
-
|
|
|
|
(73
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(4,695
|
)
|
|
|
4,009
|
|
|
|
(2,817
|
)
|
|
|
-
|
|
|
|
(3,503
|
)
|
|
Cash and cash equivalents (net of restricted cash), beginning of period
|
|
|
4,907
|
|
|
|
27,840
|
|
|
|
5,818
|
|
|
|
-
|
|
|
|
38,565
|
|
(1)
|
Cash and cash equivalents (net of restricted cash), end of period
|
|
$
|
212
|
|
|
$
|
31,849
|
|
|
$
|
3,001
|
|
|
$
|
-
|
|
|
$
|
35,062
|
|
(2)
|
(1)
|
Net of restricted cash of $707 at December 31, 2011.
|
(2)
|
Net of restricted cash of $813 at December 31, 2012.
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
Year Ended December 31, 2011
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,531
|
)
|
|
$
|
25,146
|
|
|
$
|
3,784
|
|
|
$
|
(28,930
|
)
|
|
$
|
(5,531
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,368
|
|
|
|
2,693
|
|
|
|
2,047
|
|
|
|
-
|
|
|
|
8,108
|
|
|
Depreciation, amortization and impairment
|
|
|
1,038
|
|
|
|
20,793
|
|
|
|
377
|
|
|
|
-
|
|
|
|
22,208
|
|
|
Share-based compensation
|
|
|
1,837
|
|
|
|
1,987
|
|
|
|
84
|
|
|
|
-
|
|
|
|
3,908
|
|
|
Change in contingent consideration for acquisitions
|
|
|
-
|
|
|
|
345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
345
|
|
|
Amortization of notes payable issuance costs and discount
|
|
|
2,393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,393
|
|
|
Realized (gain) loss on investment
|
|
|
-
|
|
|
|
-
|
|
|
|
(405
|
)
|
|
|
-
|
|
|
|
(405
|
)
|
|
Provision for doubtful accounts receivable and sales returns,net of recoveries
|
|
|
-
|
|
|
|
2,102
|
|
|
|
664
|
|
|
|
-
|
|
|
|
2,766
|
|
|
Stock issued for charitable contribution
|
|
|
1,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,851
|
|
|
Net change in assets and liabilities (net of effects of acquisitions)
|
|
|
(43,694
|
)
|
|
|
(13,393
|
)
|
|
|
(5,797
|
)
|
|
|
28,930
|
|
|
|
(33,954
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
(38,738
|
)
|
|
|
39,673
|
|
|
|
754
|
|
|
|
-
|
|
|
|
1,689
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
-
|
|
|
|
(1,277
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,277
|
)
|
|
Purchases of property, equipment, and leasehold improvements
|
|
|
-
|
|
|
|
(1,952
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
(1,976
|
)
|
|
Intercompany advances
|
|
|
-
|
|
|
|
(39,723
|
)
|
|
|
-
|
|
|
|
39,723
|
|
|
|
-
|
|
|
Change in restricted cash
|
|
|
140
|
|
|
|
800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
940
|
|
|
Distribution from equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
405
|
|
|
|
-
|
|
|
|
405
|
|
|
Net cash provided by (used in) investing activities
|
|
|
140
|
|
|
|
(42,152
|
)
|
|
|
381
|
|
|
|
39,723
|
|
|
|
(1,908
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
39,199
|
|
|
|
-
|
|
|
|
524
|
|
|
|
(39,723
|
)
|
|
|
-
|
|
|
Proceeds from issuance of term notes
|
|
|
53,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,560
|
|
|
Redemption and retirement of preferred stock
|
|
|
(41,750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,750
|
)
|
|
Preferred stock dividends paid
|
|
|
(7,328
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,328
|
)
|
|
Notes payable issuance costs paid
|
|
|
(1,528
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,528
|
)
|
|
Proceeds from exercise of options and employee stock purchase plan
|
|
|
1,166
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,166
|
|
|
Principal payments on notes
|
|
|
-
|
|
|
|
(4,591
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,591
|
)
|
|
Principal payments on capital leases
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
43,319
|
|
|
|
(4,595
|
)
|
|
|
524
|
|
|
|
(39,723
|
)
|
|
|
(475
|
)
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
(123
|
)
|
|
|
-
|
|
|
|
(123
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,721
|
|
|
|
(7,074
|
)
|
|
|
1,536
|
|
|
|
-
|
|
|
|
(817
|
)
|
|
Cash and cash equivalents (net of restricted cash), beginning of period
|
|
|
186
|
|
|
|
34,914
|
|
|
|
4,282
|
|
|
|
-
|
|
|
|
39,382
|
|
(1)
|
Cash and cash equivalents (net of restricted cash), end of period
|
|
$
|
4,907
|
|
|
$
|
27,840
|
|
|
$
|
5,818
|
|
|
$
|
-
|
|
|
$
|
38,565
|
|
(2)
|
(1)
|
Net of restricted cash of $1,647 at December 31, 2010.
|
(2)
|
Net of restricted cash of $707 at December 31, 2011.
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
Year Ended December 31, 2010
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(11,516
|
)
|
|
$
|
1,348
|
|
|
$
|
21,016
|
|
|
$
|
(22,364
|
)
|
|
$
|
(11,516
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(14,054
|
)
|
|
|
-
|
|
|
|
(14,056
|
)
|
|
Depreciation, amortization and impairment
|
|
|
2,221
|
|
|
|
14,762
|
|
|
|
829
|
|
|
|
-
|
|
|
|
17,812
|
|
|
Share-based compensation
|
|
|
1,350
|
|
|
|
1,121
|
|
|
|
152
|
|
|
|
-
|
|
|
|
2,623
|
|
|
Change in contingent consideration for acquisitions
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113
|
|
|
Amortization of notes payable issuance costs and discount
|
|
|
1,445
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,445
|
|
|
Realized (gain) loss on investment
|
|
|
-
|
|
|
|
-
|
|
|
|
(506
|
)
|
|
|
-
|
|
|
|
(506
|
)
|
|
Provision for doubtful accounts receivable, sales returns and non-trade receivables, net of recoveries
|
|
|
-
|
|
|
|
400
|
|
|
|
480
|
|
|
|
-
|
|
|
|
880
|
|
|
Net change in assets and liabilities (net of effects of acquisitions)
|
|
|
(21,541
|
)
|
|
|
11,487
|
|
|
|
(3,100
|
)
|
|
|
22,364
|
|
|
|
9,210
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(28,043
|
)
|
|
|
29,231
|
|
|
|
4,817
|
|
|
|
-
|
|
|
|
6,005
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(211,367
|
)
|
|
|
(4,845
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(216,212
|
)
|
|
Purchases of property, equipment, and leasehold improvements
|
|
|
(139
|
)
|
|
|
(1,220
|
)
|
|
|
(133
|
)
|
|
|
-
|
|
|
|
(1,492
|
)
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
6,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,124
|
|
|
Intercompany advances
|
|
|
8,518
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,518
|
)
|
|
|
-
|
|
|
Change in restricted cash
|
|
|
(415
|
)
|
|
|
(673
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,088
|
)
|
|
Distribution from equity investment
|
|
|
-
|
|
|
|
-
|
|
|
|
606
|
|
|
|
-
|
|
|
|
606
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(203,403
|
)
|
|
|
(614
|
)
|
|
|
473
|
|
|
|
(8,518
|
)
|
|
|
(212,062
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
-
|
|
|
|
(2,353
|
)
|
|
|
(6,165
|
)
|
|
|
8,518
|
|
|
|
-
|
|
|
Proceeds from issuance of notes payable, net of discount of $5,468
|
|
|
194,532
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,532
|
|
|
Proceeds from issuance of stock
|
|
|
41,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,750
|
|
|
Note and stock issuance costs paid
|
|
|
(9,897
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,897
|
)
|
|
Proceeds from exercise of options and employee stock purchase plan
|
|
|
160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160
|
|
|
Repurchases of stock
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
Principal payments on capital leases
|
|
|
-
|
|
|
|
(142
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(142
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
226,519
|
|
|
|
(2,495
|
)
|
|
|
(6,165
|
)
|
|
|
8,518
|
|
|
|
226,377
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(4,927
|
)
|
|
|
26,122
|
|
|
|
(875
|
)
|
|
|
-
|
|
|
|
20,320
|
|
|
Cash and cash equivalents (net of restricted cash), beginning of period
|
|
|
5,113
|
|
|
|
8,792
|
|
|
|
5,157
|
|
|
|
-
|
|
|
|
19,062
|
|
(1)
|
Cash and cash equivalents (net of restricted cash), end of period
|
|
$
|
186
|
|
|
$
|
34,914
|
|
|
$
|
4,282
|
|
|
$
|
-
|
|
|
$
|
39,382
|
|
(2)
|
(1)
|
Net of restricted cash of $559 at December 31, 2009.
|
(2)
|
Net of restricted cash of $1647 at December 31, 2010.
|
(17)
|
Quarterly Results (unaudited)
|
|
|
2012 Quarterly Results
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Net sales
|
|
$
|
60,978
|
|
|
$
|
62,886
|
|
|
$
|
60,394
|
|
|
$
|
64,646
|
|
Gross margin
|
|
|
35,995
|
|
|
|
35,590
|
|
|
|
35,540
|
|
|
|
33,728
|
|
Loss before income taxes
|
|
|
(2,258
|
)
|
|
|
(3,758
|
)
|
|
|
(2,142
|
)
|
|
|
(16,571
|
)
|
Net loss
|
|
|
(1,863
|
)
|
|
|
(5,879
|
)
|
|
|
(3,826
|
)
|
|
|
(17,252
|
)
|
Net loss attributable to Merge
|
|
|
(1,842
|
)
|
|
|
(5,882
|
)
|
|
|
(3,814
|
)
|
|
|
(17,264
|
)
|
Net loss available to common shareholders
|
|
|
(1,842
|
)
|
|
|
(5,882
|
)
|
|
|
(3,814
|
)
|
|
|
(17,264
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Quarterly Results
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Net sales
|
|
$
|
52,672
|
|
|
$
|
55,592
|
|
|
$
|
60,077
|
|
|
$
|
64,087
|
|
Gross margin
|
|
|
30,569
|
|
|
|
36,861
|
|
|
|
36,128
|
|
|
|
40,216
|
|
Income (loss) before income taxes
|
|
|
(744
|
)
|
|
|
341
|
|
|
|
(1,255
|
)
|
|
|
(208
|
)
|
Net loss
|
|
|
(1,589
|
)
|
|
|
(1,685
|
)
|
|
|
(1,013
|
)
|
|
|
(1,244
|
)
|
Net loss attributable to Merge
|
|
|
(1,589
|
)
|
|
|
(1,685
|
)
|
|
|
(995
|
)
|
|
|
(1,252
|
)
|
Net loss available to common shareholders
|
|
|
(3,155
|
)
|
|
|
(3,272
|
)
|
|
|
(995
|
)
|
|
|
(1,252
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarterly Results
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Net sales
|
|
$
|
19,970
|
|
|
$
|
29,003
|
|
|
$
|
45,189
|
|
|
$
|
46,170
|
|
Gross margin
|
|
|
13,554
|
|
|
|
12,989
|
|
|
|
24,451
|
|
|
|
24,775
|
|
Loss before income taxes
|
|
|
(3,104
|
)
|
|
|
(14,903
|
)
|
|
|
(3,459
|
)
|
|
|
(3,696
|
)
|
Net income (loss)
|
|
|
(3,152
|
)
|
|
|
(14,961
|
)
|
|
|
(3,446
|
)
|
|
|
10,043
|
|
Net income (loss) attributable to Merge
|
|
|
(3,104
|
)
|
|
|
(15,009
|
)
|
|
|
(3,446
|
)
|
|
|
10,043
|
|
Net income (loss) available to common shareholders
|
|
|
(3,152
|
)
|
|
|
(30,905
|
)
|
|
|
(5,012
|
)
|
|
|
8,477
|
|
Basic and diluted income (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.10
|
|
During the fourth quarter of 2012, we recorded charges of $3,872 related to third party licenses and technology considered unusable, $1,269 for the write-off of acquired intangibles and $9,163 related primarily to our reserve for revenues in excess of billings and uncollectible billings from customer contracts obtained through acquisitions in the past few years. The aggregate of these adjustments was to increase our net loss by $14,304 ($0.15 per share, net of income tax) for the quarter ended December 31, 2012.
Item 9.
|
CH
AN
GES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
Not applicable.
Item 9A.
|
CON
TR
OLS AND PROCEDURES
|
(a)
|
Disclosure Controls and Procedures
|
Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant’s management, including its principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosures.
Our control system is designed to provide reasonable assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012. Based on their evaluation as of December 31, 2012, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a−15(e) and 15d−15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Annual Report on Form 10−K was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
(b)
|
Management’s Report on Internal Control Over Financial Reporting
|
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework. Based on its assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2012. The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in its report which is included below.
(c)
|
Report of Independent Registered Public Accounting Firm
|
Board of Directors and Shareholders
Merge Healthcare Incorporated
Chicago, Illinois
We have audited Merge Healthcare Incorporated’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Merge Healthcare Incorporated’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Merge Healthcare Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Merge Healthcare Incorporated as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows and for each of the three years in the period ended December 31, 2012 and our report dated March 11, 2013 expressed an unqualified opinion thereon.
|
|
/s/ BDO USA, LLP
|
|
Chicago, Illinois
|
|
|
|
March 11, 2013
|
|
|
|
(d)
|
Changes in Internal Control Over Financial Reporting
|
There were no changes with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended December 31, 2012.
None.
PART III
As permitted by SEC rules, we have omitted certain information required by Part III from this Report on Form 10-K, because we intend to file (pursuant to Section 240.14a-101) our definitive proxy statement for our 2013 annual shareholder meeting (Proxy Statement) not later than April 30, 2013, and are, therefore, incorporating by reference in this Annual Report on Form 10-K such information from the Proxy Statement.
Item 10.
|
DIRE
CT
ORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this Item 10 will be included under the captions “Election of Directors” and “Information Concerning Directors, Nominees and Executive Officers” in our Proxy Statement for our 2013 annual meeting of shareholders. Information concerning the compliance of our officers, directors and 10% shareholders with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the information to be contained in the Proxy Statement under the caption “Corporate Governance — Section 16(a) Beneficial Ownership Reporting Compliance.” The information regarding Audit Committee members and “Audit Committee Financial Experts” is incorporated by reference to the information to be contained in the Proxy Statement under the caption “Corporate Governance — Committee Membership.” The information regarding our Code of Business Ethics is incorporated by reference to the information to be contained in the Proxy Statement under the heading “Corporate Governance — Merge Healthcare’s Code of Ethics.”
Merge Healthcare's Code of Ethics
All of our employees, including the Chief Executive Officer, Chief Financial Officer, our Controller, and persons performing similar functions, and all Directors, are required to abide by Merge Healthcare’s Code of Ethics to ensure that our business is conducted in a consistently legal and ethical manner. This Code of Ethics along with our Whistleblower Policy form the foundation of a comprehensive process that includes compliance with all corporate policies and procedures, an open relationship among colleagues that contributes to good business conduct, and the high integrity level of our employees and Directors. Our policies and procedures cover all areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of Merge Healthcare’s Code of Ethics. The Sarbanes–Oxley Act of 2002 requires audit committees to have procedures to receive, retain and address complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We have such procedures in place as set forth in the Merge Healthcare Incorporated Whistleblower Policy and the Code of Ethics. The Code of Ethics is included on the website, www.merge.com/Company/Investors/Corporate-Governance.
The information required by this item is incorporated herein by reference to the information set forth under the caption “Compensation of Executive Officers and Directors” in the Proxy Statement.
Item 12.
|
SEC
UR
ITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated herein by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. For information regarding our share-based compensation plans, please see Note 9 of the notes to consolidated financial statements.
Item 13.
|
CERT
AIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The information required by this item is incorporated herein by reference to the information set forth under the caption “Corporate Governance — Transactions with Related Persons” in the Proxy Statement.
Item 14.
|
PRINC
IPA
L ACCOUNTING FEES AND SERVICES
|
The information required by this item is incorporated herein by reference to the information set forth under the caption “Audit and Non-Audit Fees” in the Proxy Statement.
PART IV
Item 15.
|
EXH
IBIT
S AND FINANCIAL STATEMENTS SCHEDULES
|
(a)
|
The following documents are filed as part of this annual report:
|
Financial Statements filed as part of this report pursuant to Part II, Item 8 of this Annual Report on Form 10-K:
|
·
|
Consolidated Balance Sheets of Merge Healthcare Incorporated and Subsidiaries at December 31, 2012 and 2011;
|
|
·
|
Consolidated Statements of Operations of Merge Healthcare Incorporated and Subsidiaries for each of the three years ended December 31, 2012, 2011 and 2010;
|
|
·
|
Consolidated Statements of Comprehensive Loss of Merge Healthcare Incorporated and Subsidiaries for each of the three years ended December 31, 2012, 2011 and 2010;
|
|
·
|
Consolidated Statements of Shareholders’ Equity of Merge Healthcare Incorporated and Subsidiaries for each of the three years ended December 31, 2012, 2011 and 2010;
|
|
·
|
Consolidated Statements of Cash Flows of Merge Healthcare Incorporated and Subsidiaries for each of the three years ended December 31, 2012, 2011 and 2010;
|
|
·
|
Notes to Consolidated Financial Statements of Merge Healthcare Incorporated and Subsidiaries;
|
(b)
|
See
Exhibit Index that follows.
|
Exhibit Index
2.1
|
Agreement and Plan of Merger, dated as of May 30, 2009, by and among the Registrant, Merge Acquisition Corp., a wholly owned subsidiary of Registrant, and etrials Worldwide, Inc
.
(A)
|
2.2
|
Agreement and Plan of Merger, dated as of August 7, 2009, by and among the Registrant, Merge Acquisition Corporation, a wholly owned subsidiary of the Registrant, Confirma, Inc. and John L. Brooks
(B)
|
2.3
|
Agreement and Plan of Merger, dated as of February 28, 2010, by and among the Registrant, Project Ready Corp., a wholly owned subsidiary of the Registrant, and AMICAS, Inc.
(C)
|
2.4
|
Stock Purchase Agreement, dated as of July 2, 2010, by and among Stryker Corporation, Stryker Imaging Corporation and the Registrant
(D)
|
2.5
|
Asset Purchase Agreement, dated as of July 30, 2010, by and between the Registrant and Merrick Healthcare Solutions, LLC d/b/a Olivia Greets
(E)
|
2.6
|
Agreement and Plan of Merger, dated as of June 5, 2011, by and among the Registrant, ES Acquisition Corp., a wholly owned subsidiary of the Registrant, and Ophthalmic Imaging Systems
(F)
|
3.1
|
Certificate of Incorporation of the Registrant as filed on October 14, 2008
(G)
|
3.2
|
Certificate of Merger as filed on December 3, 2008 and effective on December 5, 2008
(G)
|
3.3
|
Series A Preferred Stock Certificate of Designations as filed on April 26, 2010
(H)
|
3.4
|
Amendment to the Certificate of Incorporation of the Registrant as filed on September 27, 2010
(I)
|
3.5
|
Bylaws of Registrant
(G)
|
10.1
|
Registration Rights Agreement, dated June 4, 2008, by and between the Registrant and Merrick RIS, LLC
(J)
|
10.2
|
Securities Purchase Agreement, dated May 21, 2008, by and among the Registrant, the subsidiaries listed on the Schedule of Subsidiaries attached thereto, and Merrick RIS, LLC
(K)
|
10.3
|
Employment Letter Agreement between the Registrant and Justin C. Dearborn entered into as
of June 4, 2008
(L)
*
|
10.4
|
Employment Letter Agreement
between the Registrant and Steven M. Oreskovich entered into as of June 4, 2008
(L)
*
|
10.5
|
Employment Letter Agreement between the Registrant and Nancy J. Koenig entered into as of June 4, 2008
(L)
*
|
10.6
|
Employment Letter Agreement between the Registrant and Antonia A. Wells entered into as of June 4, 2008
(L)
*
|
10.7
|
First Amendment, dated July 1, 2008, to that certain Securities Purchase Agreement, dated as of May 21, 2008, by and among the Registrant, certain of its subsidiaries and Merrick RIS, LLC
(M)
|
10.8
|
Consulting Agreement, effective as of January 1, 2009, by and between the Registrant and Merrick RIS, LLC
(G)
|
10.9
|
1996 Stock Option Plan for Employees of the Registrant dated May 13, 1996 (N), as amended and restated in its entirety as of September 1, 2003
(O)
*
|
10.10
|
1998 Stock Option Plan for Directors
(
P)
*
|
10.11
|
2000 Employee Stock Purchase Plan of the Registrant effective July 1, 2000
(Q)
*
|
10.12
|
2005 Equity Incentive Plan (as amended through the third amendment thereto)
(R)
*
|
10.13
|
First Amendment, effective as of January 1, 2010, to that certain Consulting Agreement, effective as of January 1, 2009, by and between the Registrant and Merrick RIS, LLC
(S)
|
10.14
|
Employment Agreement by and between the Registrant and Jeffery A. Surges entered into as of November 5, 2010
(D)
*
|
14.1
|
Code of Ethics
(G)
|
14.2
|
Whistleblower Policy
(G)
|
|
Subsidiaries of the Registrant**
|
|
Consent of Independent Registered Public Accounting Firm – BDO USA, LLP – Chicago, for the Merge Healthcare Solutions Inc.’s financial statements**
|
|
Certificate of Chief Executive Officer (principal executive officer) Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934**
|
|
Certificate of Chief Financial Officer (principal financial officer) Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934**
|
|
Certificate of Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***
|
101
|
The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 formatted in Extensible Business Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Consolidated Statements on Comprehensive Income (Loss)***
|
(A)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated May 30, 2009.
|
(B)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated August 7, 2009.
|
(C)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated March 4, 2010.
|
(D)
|
|
Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
|
(E)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated July 30, 2010.
|
(F)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated June 6, 2011.
|
(G)
|
|
Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
|
(H)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated April 30, 2010.
|
(I)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated September 30, 2010.
|
(J)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated June 6, 2008.
|
(K)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated May 22, 2008.
|
(L)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated July 15, 2008.
|
(M)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated July 7, 2008.
|
(N)
|
|
Incorporated by reference from Registration Statement on Form SB-2 (No. 333-39111) effective January 29, 1998.
|
(O)
|
|
Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2003.
|
(P)
|
|
Incorporated by reference from the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.
|
(Q)
|
|
Incorporated by reference from the Registrant’s Proxy Statement for Annual Meeting of Shareholders dated May 8, 2000.
|
(R)
|
|
Incorporated by reference from the Registrant’s Proxy Statement for Annual Meeting of Shareholders dated April 22, 2011.
|
(S)
|
|
Incorporated by reference from the Registrant’s Current Report on Form 8-K dated April 2, 2010.
|
*
|
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
|
**
|
|
Filed herewith
|
***
|
|
Furnished herewith
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Merge Healthcare Incorporated
|
Date: March 11, 2013
|
By:
|
/s/
Jeffery A. Surges
|
|
|
Jeffery A. Surges
|
|
|
Chief Executive Officer
|
|
|
(principal executive officer)
|
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffery A. Surges and Steven M. Oreskovich, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: March 11, 2013
|
By:
|
/s/
Michael W. Ferro, Jr.
|
|
|
Michael W. Ferro, Jr.
|
|
|
Chairman of the Board
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Dennis Brown
|
|
|
Dennis Brown
|
|
|
Director
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Matthew M. Maloney
|
|
|
Matthew M. Maloney
|
|
|
Director
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Richard A. Reck
|
|
|
Richard A. Reck
|
|
|
Director
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Neele E. Stearns, Jr.
|
|
|
Neele E. Stearns, Jr.
|
|
|
Director
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Jeffery A. surges
|
|
|
Jeffery A. Surges
|
|
|
Chief Executive Officer
|
|
|
(principal executive officer)
|
|
|
|
Date: March 11, 2013
|
By:
|
/s/
Justin C. Dearborn
|
|
|
Justin C. Dearborn
|
|
|
President
|
|
|
|
|
|
/s/
Steven M. Oreskovich
|
Date: March 11, 2013
|
By:
|
Steven M. Oreskovich
|
|
|
Chief Financial Officer
|
|
|
(principal financial officer and
|
|
|
principal accounting officer)
|
81