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Discontinued Operations
9 Months Ended
Jun. 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 certain liabilities associated with the SurModics Pharmaceuticals business 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, the Company recorded a loss on the sale in the first nine months of fiscal 2012 of $1.7 million ($1.0 million net of income tax benefit), including transaction costs of $1.7 million. The loss is included in “Loss on sale of discontinued operations” in the condensed consolidated statements of income.

In the fourth quarter of fiscal 2011, the Company recognized asset impairment charges totaling $28.1 million. The Company wrote down long-lived assets (fixed assets of $23.3 million and intangibles of $4.8 million), associated with its Pharmaceuticals segment, based on the valuation of the 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.

 

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 the SurModics Pharmaceuticals business, 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. SurModics also 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.

All results of operations, cash flows, assets and liabilities of SurModics Pharmaceuticals for all periods presented are classified as discontinued operations, and the condensed 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 is as follows (in thousands):

 

                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2012     2011     2012     2011  

Total revenue

  $ —       $ 4,970     $ 5,311     $ 11,823  
   

 

 

   

 

 

   

 

 

   

 

 

 
         

(Loss) income from discontinued operations

  $ —       $ (810   $ 2,309     $ (12,699

Income tax (provision) benefit

    (30     1,601       (1,078     4,123  
   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from discontinued operations, net of income taxes

  $ (30   $ 791     $ 1,231     $ (8,576
   

 

 

   

 

 

   

 

 

   

 

 

 
         

Loss on sale of discontinued operations

  $ (57   $ —       $ (1,691   $ —    

Income tax (provision) benefit

    (25     —         676       —    
   

 

 

   

 

 

   

 

 

   

 

 

 

Loss on sale of discontinued operations, net of income taxes

  $ (82   $ —       $ (1,015   $ —    
   

 

 

   

 

 

   

 

 

   

 

 

 

The major classes of assets and liabilities of discontinued operations as of June 30, 2012 and September 30, 2011 were as follows (in thousands):

 

                 
    June 30,     September 30,  
    2012     2011  

Accounts receivable, net

  $ 358     $ 3,309  

Inventories

    —         969  

Other current assets

    772       1,705  
   

 

 

   

 

 

 

Current assets of discontinued operations

    1,130       5,983  
     

Property and equipment, net

    —         24,911  

Intangible assets, net

    —         3,683  

Other assets, net

    —         3,917  
   

 

 

   

 

 

 

Total assets of discontinued operations

  $ 1,130     $ 38,494  
   

 

 

   

 

 

 
     

Accounts payable

  $ —       $ 849  

Accrued liabilities – compensation

    —         1,522  

Deferred revenue

    —         550  

Other current liabilities

    1,716       2,428  
   

 

 

   

 

 

 

Current liabilities of discontinued operations

    1,716       5,349  

Deferred revenue, less current portion

    —         3,371  

Other long-term liabilities

    —         120  
   

 

 

   

 

 

 

Total liabilities of discontinued operations

  $ 1,716     $ 8,840  
   

 

 

   

 

 

 

The assets and liabilities of discontinued operations as of June 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 also Note 16 for further discussion of the Alabama jobs commitment liability.