Cardiogenesis Acquisition (Cardiogenesis [Member])

12 Months Ended

Dec. 31, 2012

Cardiogenesis [Member]

Business Acquisition [Line Items]

Cardiogenesis Acquisition

6.  Cardiogenesis Acquisition

Overview

On May 17, 2011 CryoLife completed its acquisition of all of the outstanding shares of Cardiogenesis for $0.457 per share or approximately $21.7 million.  CryoLife used cash on hand to fund the transaction and operates Cardiogenesis as a wholly owned subsidiary.

Cardiogenesis is a leading developer of surgical products used in the treatment of patients with severe angina resulting from diffuse coronary artery disease.  Cardiogenesis markets its revascularization technologies, which include the Holmium: YAG laser console and single use, fiber-optic handpieces.  These products are U.S. Food and Drug Administration (“FDA”) approved for performing a surgical procedure known as Transmyocardial Revascularization, used for treating patients with stable angina that is not responsive to conventional therapy.

Accounting for the Transaction  

The Company recorded an allocation of the $21.7 million purchase price to Cardiogenesis’ tangible and identifiable intangible assets acquired and liabilities assumed based on their acquisition date fair values.  The allocation of the purchase price to intangible assets was based on valuations performed to determine the fair value of such assets as of the acquisition date.  Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired.  The liability amounts recorded included the Company’s estimate of contingent liabilities assumed.  The purchase price allocation was finalized as of December 31, 2011. 

The purchase price allocation as of December 31, 2011 was as follows (in thousands):

	Opening
	Balance Sheet
Cash and cash equivalents	$	650
Receivables		1,055
Inventory		852
Property and equipment		248
Intangible assets		11,900
Goodwill		4,220
Net deferred tax assets		5,002
Other assets		230
Liabilities assumed		(2,445)
Total purchase price	$	21,712

CryoLife incurred approximately $3.0 million in transaction and integration costs related to the acquisition in the year ended December 31, 2011.  The Company did not incur significant transaction or integration costs in 2012.

Pro Forma Results

Cardiogenesis’ revenues of $5.7 million from the date of acquisition are included in the Company’s Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2011.  Selected unaudited pro forma results of operations for the years ended December 31, 2011, 2010, and 2009 assuming the Cardiogenesis acquisition had occurred as of January 1, 2009, are presented for comparative purposes below (in thousands):

	Twelve Months Ended
	December 31,
	2011		2010		2009
Total revenues	$	123,951	$	127,935	$	122,039
Net income		7,962		3,176		5,610

Pro forma results for the year ended December 31, 2009 include CryoLife’s acquisition and integration related costs of approximately $3.0 million, on a pre-tax basis, and other costs as appropriate.  Pro forma disclosures were calculated using a tax rate of approximately 36%.

Legal Action 

As previously discussed in CryoLife’s Form 10-Q for the quarter ended June 30, 2012 and its prior filings, in 2008 CardioFocus, Inc. (“CardioFocus”) filed a complaint in the U.S. District Court for the District of Massachusetts (“Massachusetts Court”) against Cardiogenesis and a number of other companies.  The litigation related to an alleged infringement by Cardiogenesis of two patents held by CardioFocus that have now expired.

On June 14, 2012 Cardiogenesis entered into a settlement agreement with respect to its litigation with CardioFocus.  The settlement provides that each party release the other from all claims and liabilities related to the patents in question and that all claims and counterclaims in the litigation be withdrawn with prejudice.  Pursuant to the terms of the settlement agreement, Cardiogenesis paid $4.5 million in cash to CardioFocus.  Cardiogenesis and CardioFocus agreed and acknowledged that each party would bear its own costs and expenses, including attorneys’ fees, incurred in or as a result of the litigation.

On June 14, 2012 the parties filed a stipulation of dismissal with prejudice in the Massachusetts Court.

Accounting for the Settlement

As a result of the settlement described above, the Company recorded an additional loss of $3.6 million in general, administrative, and marketing expenses on its Consolidated Statement of Operations and Comprehensive Income in the second quarter of 2012 for a total of $4.1 million in legal settlement expenses for the year endedDecember 31, 2012.  The Company paid the $4.5 million settlement payment to CardioFocus in July 2012 using cash on hand.