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Discontinued Operations | 12 Months Ended
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Sep. 30, 2012
Discontinued Operations [Abstract] |
Discontinued Operations |
3. | Discontinued Operations
On November 1, 2011, the Company entered into a definitive agreement (the “Purchase Agreement”) to sell substantially all of the assets of its wholly-owned subsidiary, SurModics Pharmaceuticals, to Evonik Degussa Corporation (“Evonik”). Under the terms of the Purchase Agreement, the entire portfolio of products and services of SurModics Pharmaceuticals, including the Company’s Current Good Manufacturing Practices (“cGMP”) development and manufacturing facility located in Birmingham, Alabama, were sold. The Company retained all accounts receivable and the majority of liabilities associated with SurModics Pharmaceuticals incurred prior to closing. The sale (the “Pharma Sale”) closed on November 17, 2011. The total consideration received from the Pharma Sale was $30.0 million in cash. As part of the Pharma Sale, SurModics agreed not to compete in the restricted business (as defined in the Purchase Agreement) for a period of five years and to indemnify Evonik against specified losses in connection with SurModics Pharmaceuticals, including, for a period of five years, certain contingent consideration obligations related to the acquisition by SurModics Pharmaceuticals of the portfolio of intellectual property and drug delivery projects from PR Pharmaceuticals, Inc. (“PR Pharma”) SurModics retained responsibility for repayment obligations related to an agreement with various governmental authorities associated with creation of jobs in Alabama. The foregoing summary of the Purchase Agreement is qualified in its entirety by reference to the full text of the Purchase Agreement, which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 7, 2011. Refer to the Purchase Agreement for more details on the Pharma Sale. As part of the Pharma Sale, the Company recorded a loss on the sale in fiscal 2012 of $1.7 million ($1.1 million net of income tax benefit), which was principally related to transaction closing costs. The loss is included in “Loss on sale of discontinued operations” in the consolidated statements of operations. In the fourth quarter of fiscal 2011, the Company recognized asset impairment charges totaling $28.1 million (fixed assets of $23.3 million and intangibles of $4.8 million), associated with its Pharmaceuticals segment. The Company recorded a $23.3 million asset impairment charge associated with writing down its facilities in Alabama to fair value based on the current valuation of the Company’s SurModics Pharmaceuticals assets relative to their carrying value (the entire $23.3 million related to Buildings and improvements). The Company recorded a $4.8 million asset impairment charge associated with writing down its SurModics Pharmaceuticals intangibles to fair value based on the current valuation of such assets relative to their carrying value. The Company had been exploring strategic alternatives for the Pharmaceuticals segment, including a potential sale. The assets of the Pharmaceuticals segment did not qualify as held-for-sale as of September 30, 2011, because the Company had not committed to a plan to sell at that time. The Company recorded goodwill of $13.8 million associated with the acquisition of SurModics Pharmaceuticals in fiscal 2007 and an additional $5.7 million associated with milestone events in fiscal 2011. The aggregate goodwill amount of $19.5 million was impaired in fiscal 2010 and 2011 as described below. The Company recognized a goodwill impairment charge of $5.7 million in the first quarter of fiscal 2011 associated with its SurModics Pharmaceuticals reporting unit. Two milestone events were achieved associated with the July 2007 acquisition of SurModics Pharmaceuticals and $5.7 million of additional purchase price was recorded as an increase to goodwill. There had been no substantial changes in operating results for SurModics Pharmaceuticals in the first quarter of fiscal 2011 when compared with fiscal 2010, and, as such, the Company concluded that the goodwill associated with the milestone events was fully impaired. In fiscal 2010, the Company recorded a $1.9 million asset impairment charge associated with writing down one of its facilities in Alabama to fair value based on a decision to sell the facility, which decision was reversed later in fiscal 2010 ($0.5 million related to Land, $1.2 million related to Building and improvements and $0.2 million related to Laboratory fixtures and equipment). During the Company’s annual test of goodwill as of August 31, 2010, the Company determined that the goodwill related to its SurModics Pharmaceuticals reporting unit was fully impaired and it recognized a goodwill impairment charge of $13.8 million. The goodwill impairment in fiscal 2010 reflected a significant decline in the estimated fair value of the Company’s SurModics Pharmaceuticals reporting unit, which resulted from a slowdown in business activity which was most pronounced in the fourth quarter of fiscal 2010, higher operating costs with the cGMP manufacturing facility, and a significant decrease in the Company’s stock price during fiscal 2010. The stock price declined from $24.13 per share at October 1, 2009 to $12.03 at the date of the annual impairment test, which was August 31, 2010. While the Company continually evaluated whether any indications of impairment were present which would require an impairment analysis on an interim basis, no such indicators were considered present prior to the fourth quarter of fiscal 2010. All results of operations, cash flows, assets and liabilities of SurModics Pharmaceuticals for all periods presented are classified as discontinued operations, and the consolidated financial statements, including the notes, have been reclassified to reflect such segregation for all periods presented. Prior to reclassification, the discontinued operations were reported in the Pharmaceuticals segment as a separate operating segment. The summary of operating results from discontinued operations for the years ended September 30 is as follows (in thousands):
|  | 2012 |  |  | 2011 |  |  | 2010 |
Total revenue |  | $ | 5,297 |  |  | $ | 15,109 |  |  | $ | 15,715 |
Income (loss) from discontinued operations |  | $ | 2,309 |  |  | $ | (43,197 | ) |  | $ | (26,043 | )
Income tax (provision) benefit |  |  | (1,133 | ) |  |  | 13,766 |  |  |  | 4,549 |
Income (loss) from discontinued operations, net of income taxes |  | $ | 1,176 |  |  | $ | (29,431 | ) |  | $ | (21,494 | )
Loss on sale of discontinued operations |  | $ | (1,691 | ) |  | $ | — |  |  | $ | — |
Income tax benefit |  |  | 617 |  |  |  | — |  |  |  | — |
Loss on sale of discontinued operations, net of income taxes |  | $ | (1,074 | ) |  | $ | — |  |  | $ | — |
The major classes of assets and liabilities of discontinued operations as of September 30 were as follows (in thousands):
|  | 2012 |  |  | 2011 |
Accounts receivable, net |  | $ | 283 |  |  | $ | 3,309 |
Inventories |  |  | — |  |  |  | 969 |
Other current assets |  |  | 600 |  |  |  | 1,705 |
Current assets of discontinued operations |  |  | 883 |  |  |  | 5,983 |
Property and equipment, net |  |  | — |  |  |  | 24,911 |
Intangible assets, net |  |  | — |  |  |  | 3,683 |
Other assets, net |  |  | — |  |  |  | 3,917 |
Total assets of discontinued operations |  | $ | 883 |  |  | $ | 38,494 |
Accounts payable |  | $ | — |  |  | $ | 849 |
Accrued liabilities — compensation |  |  | — |  |  |  | 1,522 |
Deferred revenue |  |  | — |  |  |  | 550 |
Other current liabilities |  |  | 1,640 |  |  |  | 2,428 |
Current liabilities of discontinued operations |  |  | 1,640 |  |  |  | 5,349 |
Deferred revenue, less current portion |  |  | — |  |  |  | 3,371 |
Other long-term liabilities |  |  | — |  |  |  | 120 |
Total liabilities of discontinued operations |  | $ | 1,640 |  |  | $ | 8,840 |
The assets and liabilities of discontinued operations as of September 30, 2012 are mainly associated with accounts receivable not purchased by Evonik, deferred tax assets and a retained liability of $1.7 million associated with financial incentives SurModics Pharmaceuticals received from various Alabama governmental authorities related to creation of jobs in Alabama. See Note 9 for further discussion of the Alabama jobs commitment liability.

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- Definition The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 144 -Paragraph 43-48 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=8077374&loc=d3e2443-110228 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759 + Details
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