Description

12 Months Ended

Sep. 30, 2011

Description and Summary Of Significant Accounting Policies and Select Balance Sheet Information [Abstract]

Description

1. Description

SurModics, Inc. and subsidiaries (the “Company”) develops, manufactures and markets innovative drug delivery and surface modification technologies for the healthcare industry. The Company’s revenue is derived from three primary sources: (1) royalties and license fees from licensing its patented drug delivery and surface modification technologies and in vitro diagnostic formats to customers; (2) the sale of polymers and reagent chemicals to licensees; substrates, antigens and stabilization products to the diagnostics industry; microarray slides to the diagnostic and biomedical research markets; and (3) research and development fees generated on projects for customers.

Basis of Presentation

The consolidated financial statements include all accounts and wholly-owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant inter-company transactions have been eliminated.

Correction of Presentation of Available-for-Sale and Held-to-Maturity Securities

The Company has corrected the presentation of certain security investments in the fiscal 2010 consolidated financial statements, to present investments in available-for-sale and held-to-maturity securities separately. In the accompanying consolidated balance sheet as of September 30, 2010, $8.1 million of available-for-sale short-term securities, $1.0 million of held-to-maturity short-term securities, $33.2 million of available-for–sale long-term securities, and $3.1 million of held-to-maturity long-term securities have been disclosed separately. Previously these securities were combined as part of short-term and long-term investments, respectively. In addition, the consolidated statement of cash flows for fiscal 2010 has been corrected to present separately $24.0 million of maturities of available-for-sale securities and $2.0 million of maturities of held-to-maturity securities which were previously included in the sales and maturities of securities category.

Subsequent Event

On November 1, 2011, the Company announced that it had entered into a definitive agreement to sell substantially all of its SurModics Pharmaceuticals, Inc. (“SurModics Pharmaceuticals”) assets for $30.0 million in cash to Evonik Degussa Corporation (“Evonik”). Under the terms of the asset 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 sale closed on November 17, 2011. The Company will report the Pharmaceuticals segment as discontinued operations beginning in the first quarter of fiscal 2012. Although the assets of SurModics Pharmaceuticals continue to be presented as “held and used” as of September 30, 2011, the Company recorded an impairment charge in fiscal 2011 based on the fair value of the reporting unit which considered the expected sale price of substantially all of the assets. The Company expects to recognize a loss on disposal in the first quarter of fiscal 2012, primarily resulting from transaction costs associated with the sale. See additional disclosures in Note 2 – Property and Equipment and Intangible Assets and Note 3 – Assets and Liabilities Measured on a Non-Recurring Basis.

Restatement

In the fourth quarter of fiscal 2011, the Company recorded an asset impairment charge in its Pharmaceuticals segment of $17.9 million before taxes ($14.8 million of fixed assets and $3.1 million of intangibles). As the Company prepared its financial statements for the fiscal 2012 first quarter ended December 31, 2011, the Company determined that it had incorrectly defined the asset group utilized in computing that charge. As a result, the asset impairment charge should have been increased by an additional $10.2 million ($8.4 million of fixed assets and $1.8 million of intangibles). In connection with this restatement, the Company also chose to correct certain other less material tax items that had been previously identified but not corrected because management had concluded they were immaterial individually and in the aggregate.

These other tax corrections related to a revaluation of net deferred tax assets of $0.2 million based on certain state projected tax rates, reversal of a tax reserve of $0.1 million resulting from the lapse of the statute of limitations, a reduction of tax expense of $0.1 million associated with the tax return to tax provision adjustment process and various balance sheet reclassifications between income tax receivable (classified as prepaid and other in the consolidated balance sheet) and deferred tax balances (in current deferred taxes and other long-term liabilities in the consolidated balance sheet) of $0.4 million.

In addition, other Notes to the consolidated financial statements have been restated, as appropriate, to reflect the adjustments described in this Note.

The tables below present the effects of the restatement on the consolidated financial statements (in thousands):

Table 1 Consolidated Balance Sheets

	As Reported					As Restated
	September 30, 2011		Adjustment			September 30, 2011
Deferred tax assets	$	376	$	1,068		$	1,444
Prepaids and other		3,101		(430	)		2,671
Total current assets		53,764		638			54,402
Property and equipment, net		47,926		(8,429	)		39,497
Deferred tax assets		9,029		3,666			12,695
Intangible assets, net		10,629		(1,747	)		8,882
Total assets		162,654		(5,872	)		156,782
Other long-term liabilities		2,684		(144	)		2,540
Total liabilities		17,318		(144	)		17,174
Retained earnings		70,122		(5,728	)		64,394
Total stockholders’ equity		145,336		(5,728	)		139,608
Total liabilities and stockholders’ equity	$	162,654	$	(5,872	)	$	156,782

Table 2 Consolidated Statements of Operations

	As Reported						As Restated
	Year ended September 30, 2011			Adjustment			Year ended September 30, 2011
Asset impairment charges	$	17,890		$	10,176		$	28,066
Total operating costs and expenses		85,299			10,176			95,475
Loss from operations		(17,518	)		(10,176	)		(27,694	)
Loss before income taxes		(16,492	)		(10,176	)		(26,668	)
Income tax benefit		3,714			4,448			8,162
Net loss	$	(12,778	)	$	(5,728	)	$	(18,506	)
Basic net loss per share	$	(0.73	)	$	(0.33	)	$	(1.06	)
Diluted net loss per share	$	(0.73	)	$	(0.33	)	$	(1.06	)

Table 3 Consolidated Statements of Cash Flows

	As Reported						As Restated
	Year ended September 30, 2011			Adjustment			Year ended September 30, 2011
Net loss	$	(12,778	)	$	(5,728	)	$	(18,506	)
Asset impairment charges		17,890			10,176			28,066
Deferred tax		(5,892	)		(4,734	)		(10,626	)
Income taxes	$	1,168		$	286		$	1,454