Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

Preferred Stock and our 2017 NOL Rights Agreement

Our certificate of incorporation authorizes our board of directors (the “Board”) to issue preferred stock from time to time in one or more series. The rights, preferences, restrictions, qualifications and limitations of such stock are determined by our Board. Following the expiration of our prior rights agreement and in an effort to protect stockholder value by continuing to help preserve our substantial tax assets associated with net operating loss carryforwards and certain other deferred tax assets (“NOLs”), our Board entered into a new shareholder rights plan with American Stock Transfer & Trust Company, LLC, as Rights Agent, in April 2017 (which was approved by our stockholders at our May 2017 annual meeting of stockholders and which is essentially a restatement of the prior rights agreement, but with an expiration date of April 6, 2018, subject to earlier expiration as described below) (the “2017 NOL Rights Agreement”).

Our business operations have generated significant NOLs, and we may generate additional NOLs in future years. Under federal tax laws, we generally can use our NOLs and certain related tax credits to offset ordinary income tax paid in our prior two tax years or on our future taxable income for up to 20 years, when they “expire” for such purposes. Until they expire, we can “carry forward” NOLs and certain related tax credits that we do not use in any particular year to offset taxable income in future years. Our ability to utilize our NOLs to offset future taxable income may be significantly limited if we experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). Under Section 382, an “ownership change” occurs if a stockholder or a group of stockholders that is deemed to own at least 5% of our outstanding stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 would impose an annual limit on the amount of our NOLs that we can use to offset taxable income equal to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items specified in Section 382) and the federal long-term tax-exempt interest rate in effect for the month of the ownership change. The 2017 NOL Rights Agreement is intended to act as a deterrent to any person or group acquiring 4.99% or more of our outstanding common stock without the prior approval of our Board.

Under the 2017 NOL Rights Agreement, stockholders of record as of April 17, 2017 (the “Record Date”) were issued one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share (the “Common Shares”), outstanding as of  the Record Date. The Rights will also attach to new Common Shares issued after the Record Date. Each Right entitles the registered holder to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”) at a price of $80 per one one-thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. Each Preferred Share is designed to be the economic equivalent of 1,000 Common Shares. 

The Rights will separate from the common stock and become exercisable on the earlier of (i) the tenth day after a public announcement that a person or group of affiliated or associated persons, has become an “Acquiring Person” (as such term is defined in the 2017 NOL Rights Agreement) or (ii) ten business days (or such later date as the Board may determine) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer which would result in the beneficial ownership by an Acquiring Person of 4.99% (or, in the case of a Grandfathered Person, the Grandfathered Percentage applicable to such Grandfathered Person (as such terms are defined in the 2017 NOL Rights Agreement)) or more of the outstanding Common Shares (the earlier of such dates being called the “Distribution Date”). 

In the event that we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold to an Acquiring Person, its affiliates or associates or certain other persons in which such persons have an interest, proper provision will be made so that each such holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right.

The Rights will expire on the earliest of the close of business on (1) April 6, 2018, (2) the effective date of the repeal of Section 382 or any successor statute if the Board determines that the 2017 NOL Rights Agreement is no longer necessary or desirable for the preservation of tax benefits or (3) the first day of a taxable year of the Company to which the Board determines that no tax benefits may be carried forward (the “Final Expiration Date”), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by us.

The terms of the Rights generally may be amended by the Board without the consent of the holders of the Rights, except that from and after the time that the Rights are no longer redeemable, no such amendment may adversely affect the interests of the holders of the Rights (excluding the interests of any Acquiring Person and any group of affiliated or associated persons).

There can be no assurance that the 2017 NOL Rights Agreement will result in us being able to preserve all or any of the substantial tax assets associated with NOLs and other tax benefits.

Share Repurchase Program

In January 2016, we announced that our Board authorized a program to repurchase up to $60.0 million in shares of our common stock. The repurchase program does not have an expiration date and may be suspended for periods or discontinued at any time. Under the program, we may purchase our stock from time to time at the discretion of management in the open market or in privately negotiated transactions. The number of shares repurchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, along with working capital requirements, general business conditions and other factors. We may also from time to time establish a trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934 to facilitate purchases of our shares under this program. As of June 30, 2017, we repurchased and retired 831,744 shares of common stock under this repurchase program for $20.0 million at an average purchase price of $24.05 per share. We did not repurchase any of our common stock during the first half of 2017.

Change in Stockholders’ Equity

Total stockholders’ equity increased by $13.1 million during the six months ended June 30, 2017. This increase was primarily driven by the following:

• $21.6 million increase related to the cumulative-effect adjustment to our accumulated deficit from previously unrecognized excess tax benefits upon our adoption of ASU No. 2016-09;

• $13.5 million increase related to net shares issued in connection with the Endoceutics License Agreement;

• $11.7 million increase related to equity-based compensation expense;

• $72.6 million increase related to the Equity Component of the 2022 Convertible Notes;

• $50.6 million reduction due to our net loss for the six months ended June 30, 2017;

• $27.2 million reduction related to changes in deferred taxes associated with our debt transactions executed during the second quarter of 2017;

• $25.5 million reduction related to the Equity Component of the 2019 Convertible Notes repurchased; and

• $2.2 million reduction related to the Equity Component for debt issuance costs associated with the 2022 Convertible Notes.