Attached files

file filename
10-Q - FORM 10-Q - Xstelos Holdings, Inc.v326124_10q.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R46.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R33.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R42.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R39.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R25.htm
EX-32.1 - EXHIBIT 32.1 - Xstelos Holdings, Inc.v326124_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Xstelos Holdings, Inc.v326124_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.Financial_Report.xls
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R12.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R3.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R1.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R4.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R7.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R2.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R5.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R8.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R9.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R6.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R21.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R11.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R13.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R32.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R37.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R23.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R35.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R31.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R22.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R26.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R20.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R43.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R18.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R29.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R17.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R36.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R44.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R40.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R34.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R41.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R27.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R45.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R10.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R24.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R38.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R16.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R15.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R30.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R28.htm
XML - IDEA: XBRL DOCUMENT - Xstelos Holdings, Inc.R14.htm
v2.4.0.6
Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
Consolidation, Policy [Policy Text Block]

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its majority owned, and wholly-owned, subsidiaries which were derived from the historical accounting records of Xstelos Corp, prior to January 19, 2012, and reflect the historical financial positions, results of operations, and cash flows for the periods described herein. Intercompany balances and transactions between the entities have been eliminated. For simplicity of presentation, these condensed consolidated financial statements are referred to as financial statements herein.

Fiscal Period, Policy [Policy Text Block]

Fiscal Years

 

The accompanying condensed consolidated financial statements include the three month results of operations, and six month results of operations, and assets and liabilities, based on a 52-week calendar year ending December 31, 2012 and for the 53-week fiscal year ending December 31, 2011.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash equivalents

 

Cash and cash equivalents consist of highly liquid instruments with maturities of three months or less from the date acquired and stated at cost that approximates their fair market value. At times the Company has cash and cash equivalents balances in excess of the FDIC and SIPC insured limits.

 

At September 30, 2012, restricted cash of $2,500,000 pledged to support a bank credit facility, is classified as a non-current asset. The restricted cash serves as collateral for the loan in connection with the CPEX Transaction that provides financial assurance that the Company has the ability to service the loan, as discussed in Note 7 – Long Term Debt. The cash is held in custody by the loan agent, is restricted as to withdrawal or use, and is currently not invested and does not bear interest.

Receivables, Policy [Policy Text Block]

Accounts receivable and allowances for doubtful accounts

 

When necessary, receivable balances are reported net of an estimated allowance for uncollectible accounts. Estimated uncollectible receivables are based on the amount and status of past due accounts, contractual terms with customers, the credit worthiness of customers and the history of uncollectible accounts. Accounts receivable as of September 30, 2012, and related royalty revenues for the nine months then ended, are due from its licensee, Auxilium, for sales of Testim®. All receivables are uncollateralized and therefore are subject to credit risk.

 

The Company determined no allowance for doubtful accounts was necessary as of September 30, 2012 and December 31, 2011.

Fixed Assets Held For Sale [Policy Text Block]

Fixed assets held for sale

 

Fixed assets held for sale consist of laboratory equipment, which were obtained in the CPEX acquisition. As these assets are not in service, no depreciation expense has been recorded. These assets are reflected at the lower of net book value or their estimated fair value.

Marketable Securities, Policy [Policy Text Block]

Marketable securities

 

The Company accounts for its marketable securities pursuant to FASB ASC Topic 320, “Investments in Debt and Equity Securities.” Under this topic, the Company initially accounted for this security with readily determinable fair values as available-for-sale. In the second quarter of 2012, the Company reclassified the security to trading security resulting in the elimination of accumulated other comprehensive income of $61,000 as a change in the accompanying condensed consolidated statements of income and comprehensive income. The security reflected on the accompanying condensed consolidated balance sheets is at fair market value based on quoted market prices with the unrealized gains and losses reported in the condensed consolidated statements of income.

 

During the three month and nine month period ended September 30, 2012, the Company received gross proceeds of approximately $0 and $734,000, respectively, from the sale of shares of its marketable securities and recognized a gain due to an increase in market value of approximately $411,000 and a loss due to a decrease in market value of approximately $116,000, respectively. As of September 30, 2012, marketable securities consisted of a stock at a fair value of approximately $3.8 million.

Property, Plant and Equipment, Policy [Policy Text Block]

Fixed assets

 

The Company, through its acquisition of CPEX, owns a 16,434 square foot commercial building situated on approximately 14 acres of land in Exeter, New Hampshire (“Exeter”). It is located approximately 50 miles north of Boston, Massachusetts. During the second quarter of 2012, management withdrew its plan to sell the Exeter property. The Company is currently leasing the Exeter property and is not marketing this property for sale. As a result of this decision, in accordance with FASB ASC 360-10-35-44, the property was reclassified as held-for-use, which requires the asset to be reclassified at the lower of carrying value before the asset was classified as held for sale, less the depreciation that would have been recorded had the asset been continuously classified as held for sale, or the fair value on the date it was decided that it would not be sold. As a result, approximately $13,000 and $76,000 of depreciation expense has been recorded for the three months and nine months ended September 30, 2012 related to this asset, which represents the expense that would have been recorded during the period were it considered held-for-sale. This building was reported as Real estate held for sale from April 5, 2011 through May 31, 2012, and reclassified to Fixed assets in use once the Company started leasing the property. As a result of this lease, management disposed of approximately $134,000 of furniture and equipment that were stored in the Exeter building, and recorded a loss which is included in loss on disposal of non-operating assets, in the accompanying condensed consolidated statements of income and comprehensive income.

 

The Company recognizes rental revenue from the lease of the Exeter property. The term of the lease is 63 months, of which the lease agreement contains provisions for future rent increases and periods in which rent payments are abated, with an average monthly income of approximately $13,000. In accordance with generally accepted accounting principles, the Company records monthly rent income, on a straight line basis, equal to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between rental income recorded and the amount received is debited or charged to “deferred rent income”. As of September 30, 2012, approximately $54,000 of deferred rental income is included in deferred financing costs and other noncurrent assets, in the accompanying condensed consolidated balance sheets, and for the three months and nine months ending September 30, 2012, approximately $41,000 and $54,000 has been recorded as rental income, in the accompanying condensed consolidated statements of income and comprehensive income.

Real Estate, Policy [Policy Text Block]

Real estate

 

The Company had been marketing its Mahwah Real Estate for sale since May 5, 2007 and the Company estimated that the fair value of the real estate, less estimated closing costs, at approximately $6.2 million. This estimate was based on unobservable inputs (see Note 4 - Fair Value Measurements).  Inputs used to estimate the Mahwah Real Estate value include the location’s assessed tax valuation and local real estate broker estimates of value. On April 27, 2012, the Company signed a purchase agreement and sold its Mahwah Real Estate to a third party buyer for approximately $14.6 million less selling and other costs of approximately $0.8 million, and recognized a gain of approximately $7.7 million. The Mahwah Real Estate was recorded at the lesser of cost or net realizable value at December 31, 2011.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and intangible assets

 

Costs incurred in connection with acquiring licenses, patents, and other proprietary rights are capitalized as intangible assets. These assets are amortized on a straight-line basis over the applicable useful life from the dates of acquisition. Such assets are reviewed whenever events or changes in circumstances indicate that the assets may be impaired, by comparing the carrying amounts to their estimated future undiscounted cash flows, and adjustments are made for any diminution in value below the carrying value.

 

The assets acquired in the CPEX acquisition included approximately $59.4 million of intangible assets which were assigned primarily to CPEX’s patents and license agreement associated with Testim®, a topical testosterone gel. The acquired intangible asset has a useful life of approximately 15 years, with the patent expiring on January 3, 2026.

 

Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. FASB ASC Topic 350 requires that goodwill not be amortized but must be reviewed for impairment at least annually and if a triggering event were to occur in an interim period. The Company performs at least an annual assessment of goodwill for impairment or whenever events or circumstances indicate that the carrying value of goodwill may not be recoverable from future cash flows. The Company’s annual impairment test is performed at the end of its fiscal year. There was no impairment at December 31, 2011.

 

Included in the acquisition of CPEX, the Company recorded goodwill of approximately $10.9 million. As of September 30, 2012 no impairment has been charged against goodwill recorded in the acquisition of CPEX.

 

In September 2011, the FASB issued authoritative guidance that permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted this guidance in fiscal 2012 in connection with its annual testing of goodwill for impairment.

Income Tax, Policy [Policy Text Block]

Income taxes

 

The Internal Revenue Code requires any company that satisfies the definition of a “personal holding company” to pay personal holding company taxes in addition to regular income taxes. A company will be taxed as a personal holding company if (1) more than 50.0% of the value of the company’s stock is held by five or fewer individuals and (2) at least 60.0% of the company’s adjusted ordinary gross income constitutes personal holding company income. If the company is considered a personal holding company, its undistributed personal holding company income, which is generally taxable income with certain adjustments, including a deduction for federal income taxes and dividends paid, will be taxed at the dividend tax rate, which is currently 15.0%, and which tax rate is scheduled to increase January 1, 2013, to 39.6%, under the current tax code. Whether or not the Company or any of its subsidiaries are classified as personal holding companies will depend upon, among other factors, the amount of any personal holding company income and the percentage of any outstanding common stock that is beneficially owned by the Company’s five largest stockholders. The Company was taxed as a personal holding company for the 2011 tax year based on the nature of its income and its share ownership. The Company will be taxed as a personal holding company for the 2012 tax year and, depending on the facts and circumstances, in future years. As a result of Cash dividends and Consent dividends issued by CPEX Pharmaceuticals and FCB I Holdings, through September 30, 2012 and the tax loss generated by the sale of the Mahwah Real Estate during 2012, there has been no Personal Holding Company tax expense incurred as of September 30, 2012. If the Company is taxed as a personal holding company in 2013, and assuming that the rate of personal holding company tax increases to 39.6%, the Company may incur significant personal holding company tax, none of which may be offset by the Company’s federal net operating loss carry forwards.

 
                As discussed further in Note 8 – Income Taxes, the Company records deferred tax assets and liabilities based on the differences between the book and tax bases of assets and liabilities and on operating loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse.

 

The Company follows FASB ASC Topic 740 when accounting for tax contingencies. The guidance prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under GAAP, tax benefits are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

The Company does not have any unrecognized tax contingencies. The Company’s policy is to recognize interest and penalties related to tax matters in the income tax provision in the Condensed Consolidated Statements of Income and Comprehensive Income. There were no tax related interest and penalties for the three months and nine months ended September 30, 2012 or for the three months and nine months ended October 1, 2011. Tax years beginning in 2009 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.

 

The Company determined the deferred tax provision under the liability method, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using currently enacted tax rates.

 

The Company reviews the valuation of deferred tax assets based on positive evidence, such as projections of future taxable earnings along with negative evidence, such as operational uncertainties. As a result, the Company concluded that it is more likely than not that certain deferred tax assets will be realized as of September 30, 2012, based primarily on the actual earnings from CPEX operations since the date of acquisition in April 2011, and the forecasted performance of CPEX, and reduced the previously recorded valuation allowance resulting in a tax benefit of approximately $21.2 million for the three and nine months then ended.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

 

CPEX recognizes revenue from royalties on Auxilium’s sales of Testim® in accordance with FASB ASC Topic 605-10, which requires sales to be recorded upon delivery, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, title has passed, collectability is reasonably assured and the price is fixed or determinable. Since 2003, Auxilium has sold Testim® to pharmaceutical wholesalers and chain drug stores, which have the right to return purchased products prior to the units being dispensed through patient prescriptions. Based on historical experience, CPEX is able to reasonably estimate future product returns on sales of Testim® and as a result, did not defer Testim® royalties for the nine months ended September 30, 2012.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Based Compensation

 

The Company accounts for its stock based employee compensation plans under FASB ASC Topic 718 and FASB ASC Topic 505-50. FASB ASC Topic 718-10 and FASB ASC Topic 505-50 address the accounting for shared based payment transactions in which an enterprise receives employee services for equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC Topic 718-10 and FASB ASC Topic 505-50 require that such transactions be accounted for using a fair value based method. 

 

In considering the fair value of the underlying stock when the Company grants options or restricted stock, the Company considers several factors including the fair values established by market transactions. Stock-based compensation includes significant estimates and judgments of when stock options might be exercised, forfeiture rates and stock price volatility. The timing of option exercises is out of the Company’s control and depends upon a number of factors including the Company’s market value and the financial objectives of the holders of the options. These estimates can have a material impact on the Company’s stock compensation expense but will have no impact on the Company’s cash flows.

 

The Company accounts for equity awards of the Company issued to non-employees providing services on behalf of the Company in accordance with FASB ASC Topic 505-50 (formerly EITF No. 96-18 “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with, Selling Goods or Services.”). FASB ASC Topic 505-50 requires the Company to measure the fair value of equity instruments using the stock prices and other measurement assumptions as of the earlier of either the date at which a performance commitment by the counterparty is reached or the date at which the counterparty’s performance is complete.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

 

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the revenues and expenses reported during the period, and includes, among others, allocations of CPEX purchase price, lives of intangible assets, estimate of long-term debt classified as current, and valuation allowances on deferred taxes. These estimates and assumptions are based on management’s judgment and available information and, consequently, actual results could differ from these estimates.

Earnings Per Share, Policy [Policy Text Block]

Earnings per Common Share

 

Basic net earnings per common share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share is calculated using the weighted-average number of common shares plus dilutive potential common shares outstanding during the period. There are 2,500,000 options outstanding at September 30, 2012 which are potentially dilutive and were added to the basic common shares outstanding to calculate the dilutive common shares outstanding for the three and nine months ended September 30, 2012.

 

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three and nine month ended September 30, 2012, are as follows:

 

  Three Months Ended  Nine Months Ended 
  September 30, 2012  September 30, 2012 
       
Weighted average shares outstanding-basic  23,191,341   15,822,162 
Plus: Common share equivalents        
Options  2,048,969   1,153,178 
Weighted average shares outstanding-diluted  25,240,310   16,975,340 
Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

 

The Company measures fair value in accordance with FASB ASC Topic 820, Fair Value Measurements (“ASC 820”). ASC 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

·   Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

 

·   Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

 

·   Level 3 - unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

 

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value (see Note 4 - Fair Value Measurements).

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

 

In May 2011, the FASB issued amended guidance on fair value measurements. This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This accounting standard is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011. Adoption of this new guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

In June 2011, the FASB issued authoritative guidance related to the Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The new requirements are effective for public entities for fiscal years beginning after December 15, 2011 and interim and annual periods thereafter, with early adoption permitted. As this accounting standard only requires enhanced disclosure, the adoption of this standard did not impact the Company’s financial position or results of operations.