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Discontinued Operations
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Discontinued Operations

 

NOTE 10 DISCONTINUED OPERATIONS

Cosmeceutical and Toiletry Business

On July 25, 2000, we completed the sale of certain technology rights for our cosmeceutical and toiletry business to RP Scherer Corporation (RP Scherer), a subsidiary of Cardinal Health, Inc. 

Under the terms of the agreement with RP Scherer, we guaranteed a minimum gross profit percentage on RP Scherer’s combined sales of products to Ortho and Dermik (Gross Profit Guaranty). In July 2011, Valeant Pharmaceuticals announced it was acquiring both Ortho and Dermik. The guaranty period initially commenced on July 1, 2000 and was to end on the earlier of July 1, 2010 or the end of two consecutive guaranty periods where the combined gross profit on sales to Ortho and Dermik equals or exceeds the guaranteed gross profit (Two Period Test). The Gross Profit Guaranty expense totaled $944,000 for the first seven guaranty years and in those years profits did not meet the Two Period Test. Effective March 2007, in conjunction with a sale of assets by RP Scherer’s successor company to an Amcol International subsidiary (Amcol), a new agreement was signed between us and Amcol to provide continuity of product supply to Ortho and Dermik. This new agreement potentially extends the Gross Profit Guaranty period an additional two years to July 1, 2013, unless it is terminated earlier with the Two Period Test. Amcol has indicated that its costs differ from those it charged historically to the RP Scherer successor company to produce the products. We have requested documentation from Amcol to substantiate actual costs. Until we receive confirmation of these amounts, we have accrued the full amount Amcol represents it is currently owed. As there is no minimum amount of Gross Profit Guaranty due, no accrual for the guaranty is estimable for future years. A liability of $1.1 million related to the current amount due under the Gross Profit Guaranty is recorded in accrued disposition costs as of December 31, 2011, although we have not paid this amount to date due to our inability to substantiate the amounts claims by Amcol. As of the date of filing of this report, our dispute with Amcol over the Gross Profit Guaranty has been submitted to an independent accountant for resolution.

We completed the sale of certain technology rights for our topical pharmaceutical and cosmeceutical product lines and other assets (cosmeceutical and toiletry business) in July 2000.

The cosmeceutical and toiletry business is reported as discontinued operations for all periods presented in the accompanying Statements of Operations. Income (loss) from discontinued operations represents primarily the gain (loss) attributable to changes in estimates of our cosmeceutical and toiletry business that was sold to RP Scherer on July 25, 2000, as follows (in thousands):

 

For the years ended December 31,  2011  2010  2009
Cosmeceutical and Toiletry Business:               
  Change in estimates for guarantees  $(379)  $(150)  $68 

There was no revenue relating to discontinued operations for the years ended December 31, 2011, 2010 and 2009.

Basic and diluted income (loss) per common share from discontinued operations was $0 for the years ended December 31, 2011, 2010 and 2009. 

As of December 31, 2011 and 2010, accrued disposition cost of $1.1 million and $0.7 million, respectively, represents accruals for gross profit guarantees related to discontinued operations.