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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Sep. 30, 2011	Dec. 09, 2011	Mar. 31, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	SURMODICS INC
Entity Central Index Key	0000924717
Document Type	10-K
Document Period End Date	Sep. 30, 2011
Amendment Flag	true
Amendment Description	Amendment No.1
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--09-30
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 163
Entity Common Stock, Shares Outstanding		17,527,547

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2011	Sep. 30, 2010
Current Assets:
Cash and cash equivalents	$ 23,217	$ 11,391
Available-for-sale securities	12,196	8,093
Held-to-maturity securities	3,030	1,012
Accounts receivable, net of allowance for doubtful accounts of $155 and $461 as of September 30, 2011 and 2010, respectively	7,694	8,987
Inventories	4,150	3,047
Deferred tax assets	1,444	247
Prepaids and other	2,671	4,701
Total Current Assets	54,402	37,478
Property and equipment, net	39,497	65,395
Available-for-sale securities	29,754	33,178
Held-to-maturity securities	0	3,112
Deferred tax assets	12,695	2,606
Intangible assets, net	8,882	15,257
Goodwill	8,010	8,010
Other assets, net	3,542	5,243
Total Assets	156,782	170,279
Current Liabilities:
Accounts payable	2,421	3,341
Accrued liabilities:
Compensation	3,474	930
Accrued other	1,933	1,753
Deferred revenue	603	562
Other current liabilities	2,609	1,061
Total Current Liabilities	11,040	7,647
Deferred revenue, less current portion	3,594	3,598
Other long-term liabilities	2,540	4,675
Total Liabilities	17,174	15,920
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Series A preferred stock - $.05 par value, 450,000 shares authorized; no shares issued and outstanding
Common stock - $.05 par value, 45,000,000 shares authorized; 17,531,408 and 17,423,601 shares issued and outstanding	877	871
Additional paid-in capital	74,490	69,702
Accumulated other comprehensive (loss) income	(153)	886
Retained earnings	64,394	82,900
Total Stockholders' Equity	139,608	154,359
Total Liabilities and Stockholders' Equity	$ 156,782	$ 170,279

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2011	Sep. 30, 2010
Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 155	$ 461
Series A Preferred stock, par value	$ .05	$ .05
Series A Preferred stock, shares authorized	450,000	450,000
Series A Preferred stock, shares issued
Series A Preferred stock, shares outstanding
Common stock, par value	$ .05	$ .05
Common stock, shares authorized	45,000,000	45,000,000
Common stock, shares issued	17,531,408	17,423,601
Common stock, shares outstanding	17,531,408	17,423,601

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Revenue:
Royalties and license fees	$ 30,583	$ 34,277	$ 75,464
Product sales	22,965	20,184	19,333
Research and development	14,233	15,437	26,737
Total revenue	67,781	69,898	121,534
Operating costs and expenses:
Product	8,315	9,425	7,508
Customer research and development	18,412	18,147	13,183
Other research and development	12,244	17,916	21,179
Selling, general and administrative	20,545	18,451	17,200
Purchased in-process research and development			3,200
Restructuring charges	2,243	1,306	1,763
Asset impairment charges	28,066	4,896
Goodwill impairment charges	5,650	13,810
Total operating costs and expenses	95,475	83,951	64,033
(Loss) income from operations	(27,694)	(14,053)	57,501
Other income (loss):
Investment income, net	625	1,023	1,839
Impairment loss on cost method investments		(7,943)
Other income, net	401	314	184
Other income (loss), net	1,026	(6,606)	2,023
(Loss) income before income taxes	(26,668)	(20,659)	59,524
Income tax benefit (provision)	8,162	(430)	(21,974)
Net (loss) income	$ (18,506)	$ (21,089)	$ 37,550
Basic net (loss) income per share	$ (1.06)	$ (1.21)	$ 2.15
Diluted net (loss) income per share	$ (1.06)	$ (1.21)	$ 2.15
Weighted average number of shares outstanding:
Basic	17,419	17,372	17,435
Dilutive effect of outstanding stock options and non-vested stock			34
Diluted	17,419	17,372	17,469

Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings
Beginning balance at Sep. 30, 2008	$ 141,806	$ 901	$ 74,573	$ (107)	$ 66,439
Beginning balance, shares at Sep. 30, 2008		18,030
Components of comprehensive income (loss), net of tax:
Net (loss) income	37,550				37,550
Unrealized holding gains (losses) on available-for-sale securities arising during the period	2,123			2,123
Add reclassification for gains included in net income (loss), net of tax provision of $299, $118 and $144 in 2009, 2010 and 2011, respectively	(512)			(512)
Comprehensive income (loss)	39,161
Issuance of common stock, shares		40
Issuance of common stock	613	$ 2	611
Common stock repurchased, shares		(624)
Common stock repurchased	(14,998)	$ (31)	(14,967)
Common stock options exercised, net, shares		15
Common stock options exercised, net	66	$ 1	65
Purchase of common stock to pay employee taxes, shares		10
Purchase of common stock to pay employee taxes	(568)	$ 1	(569)
(Reduction) excess of tax benefit from stock-based compensation plans	(366)		(366)
Stock-based compensation	6,853		6,853
Other	(195)		(195)
Ending balance at Sep. 30, 2009	172,372	$ 874	66,005	1,504	103,989
Ending balance, shares at Sep. 30, 2009		17,471
Components of comprehensive income (loss), net of tax:
Net (loss) income	(21,089)				(21,089)
Unrealized holding gains (losses) on available-for-sale securities arising during the period	(437)			(437)
Add reclassification for gains included in net income (loss), net of tax provision of $299, $118 and $144 in 2009, 2010 and 2011, respectively	(181)			(181)
Comprehensive income (loss)	(21,707)
Issuance of common stock, shares		40
Issuance of common stock	610	$ 2	608
Common stock repurchased, shares		(102)
Common stock repurchased	(2,032)	$ (6)	(2,026)
Common stock options exercised, net, shares		14
Common stock options exercised, net	282	$ 1	281
Purchase of common stock to pay employee taxes, shares		1
Purchase of common stock to pay employee taxes	(545)		(545)
(Reduction) excess of tax benefit from stock-based compensation plans	(496)		(496)
Stock-based compensation	5,875		5,875
Ending balance at Sep. 30, 2010	154,359	$ 871	69,702	886	82,900
Ending balance, shares at Sep. 30, 2010		17,424
Components of comprehensive income (loss), net of tax:
Net (loss) income	(18,506)				(18,506)
Unrealized holding gains (losses) on available-for-sale securities arising during the period	(804)			(804)
Add reclassification for gains included in net income (loss), net of tax provision of $299, $118 and $144 in 2009, 2010 and 2011, respectively	(235)			(235)
Comprehensive income (loss)	(19,545)
Issuance of common stock, shares		55
Issuance of common stock	574	$ 3	571
Purchase of common stock to pay employee taxes, shares		52
Purchase of common stock to pay employee taxes	(40)	$ 3	(43)
(Reduction) excess of tax benefit from stock-based compensation plans	8		8
Stock-based compensation	4,252		4,252
Ending balance at Sep. 30, 2011	$ 139,608	$ 877	$ 74,490	$ (153)	$ 64,394
Ending balance, shares at Sep. 30, 2011		17,531

Consolidated Statements of Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Gains included in net income, tax provision	$ 144	$ 118	$ 299
Accumulated Other Comprehensive Income (Loss)
Gains included in net income, tax provision	$ 144	$ 118	$ 299

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Operating Activities:
Net (loss) income	$ (18,506)	$ (21,089)	$ 37,550
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	7,145	7,818	5,912
Asset impairment charges	28,066	4,896
Goodwill impairment charges	5,650	13,810
Gains on sales of securities and equity method investment losses, net	(380)	(299)	(103)
Amortization of premium on held-to-maturity securities	93	128	139
Impairment loss on cost method investments		7,943
Stock-based compensation	4,252	5,875	6,853
Purchased in-process research and development			3,200
Deferred tax	(10,626)	446	8,229
(Excess) reduction of tax benefit from stock-based compensation plans	(8)	496	366
Loss on disposals of property and equipment	164	3	291
Other			(250)
Change in operating assets and liabilities:
Accounts receivable	1,293	2,333	3,269
Inventories	(1,103)	284	(679)
Accounts payable and accrued liabilities	1,949	1,135	(624)
Income taxes	1,454	(4,121)	2,656
Deferred revenue	37	2,632	(36,050)
Prepaids and other	475	(282)	562
Net cash provided by operating activities	19,955	22,008	31,321
Investing Activities:
Purchases of property and equipment	(3,459)	(9,679)	(29,364)
Purchases of available-for-sale securities	(50,926)	(34,919)	(33,568)
Sales and maturities of available-for-sale securities	50,364	23,986	55,263
Maturities of held-to-maturity securities	1,000	2,000
Investment in other strategic assets		(500)	(2,500)
Purchase of licenses and patents		(210)	(631)
Payments related to a prior business acquisition	(5,650)	(750)	(8,585)
Other investing activities			(187)
Net cash used in investing activities	(8,671)	(20,072)	(19,572)
Financing Activities:
Excess (reduction of) tax benefit from stock-based compensation plans	8	(496)	(366)
Issuance of common stock	574	892	679
Repurchase of common stock		(2,032)	(14,998)
Purchase of common stock to pay employee taxes	(40)	(545)	(568)
Repayment of notes payable			(236)
Net cash provided by (used in) financing activities	542	(2,181)	(15,489)
Net change in cash and cash equivalents	11,826	(245)	(3,740)
Cash and Cash Equivalents:
Beginning of year	11,391	11,636	15,376
End of year	23,217	11,391	11,636
Supplemental Information:
Cash paid for income taxes	1,010	4,105	11,285
Noncash transaction - acquisition of property, plant and equipment on account	$ 209	$ 565	1,247
Noncash transaction - acquisition of intangibles on account			$ 210

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

Summary Of Significant Accounting Policies and Select Balance Sheet Information

12 Months Ended

Sep. 30, 2011

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

Summary Of Significant Accounting Policies and Select Balance Sheet Information

2. Summary of Significant Accounting Policies and Select Balance Sheet Information

Cash and Cash Equivalents

Cash and cash equivalents consist of financial instruments with original maturities of three months or less and are stated at cost which approximates fair value.

Investments

Investments consist principally of U.S. government and government agency obligations and mortgage-backed securities and are classified as available-for-sale or held-to-maturity at September 30, 2011 and 2010. Available-for-sale investments are reported at fair value with unrealized gains and losses net of tax excluded from operations and reported as a separate component of stockholders’ equity, except for other-than-temporary impairments, which are reported as a charge to current operations. A loss would be recognized when there is an other-than-temporary impairment in the fair value of any individual security classified as available-for-sale, with the associated net unrealized loss reclassified out of accumulated other comprehensive income with a corresponding adjustment to other income (loss). This adjustment results in a new cost basis for the investment. Investments that management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. When an other-than-temporary impairment in the fair value of any individual security classified as held-to-maturity occurs, the Company writes down the security to fair value with a corresponding adjustment to other income (loss). Interest on debt securities, including amortization of premiums and accretion of discounts, is included in other income (loss). Realized gains and losses from the sales of debt securities, which are included in other income (loss), are determined using the specific identification method.

The original cost, unrealized holding gains and losses, and fair value of available-for-sale investments as of September 30 were as follows (in thousands):


	2011
	Original Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government and government agency obligations	$	30,433	$	176	$	(6	)	$	30,603
Mortgage-backed securities		3,871		131		(54	)		3,948
Municipal bonds		3,561		53		—			3,614
Asset-backed securities		1,336		1		(49	)		1,288
Corporate bonds		2,474		32		(9	)		2,497

Total	$	41,675	$	393	$	(118	)	$	41,950


	2010
	Original Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government and government agency obligations	$	25,968	$	395	$	(34	)	$	26,329
Mortgage-backed securities		4,711		164		(48	)		4,827
Municipal bonds		3,079		72		—			3,151
Asset-backed securities		1,146		8		(42	)		1,112
Corporate bonds		5,828		24		—			5,852

Total	$	40,732	$	663	$	(124	)	$	41,271

The original cost and fair value of investments by contractual maturity at September 30, 2011 were as follows (in thousands):


	Amortized Cost		Fair Value
Debt securities due within:
One year	$	12,178	$	12,196
One to five years		24,349		24,587
Five years or more		5,148		5,167

Total	$	41,675	$	41,950

The following table summarizes sales of available-for-sale securities for the years ended September 30, 2011, 2010 and 2009 (in thousands):


	2011			2010			2009
Proceeds from sales	$	50,364		$	23,986		$	55,263
Gross realized gains	$	384		$	302		$	823
Gross realized losses	$	(4	)	$	(3	)	$	(12	)

At September 30, 2011, the amortized cost and fair market value of held-to-maturity debt securities were $3.0 million and $3.1 million, respectively. Investments in securities designated as held-to-maturity consist of tax-exempt municipal bonds and have maturity dates ranging between five months and six months from September 30, 2011. At September 30, 2010, the amortized cost and fair market value of held-to-maturity debt securities were $4.1 million and $4.3 million, respectively.

Inventories

Inventories are principally stated at the lower of cost or market using the specific identification method and include direct labor, materials and overhead. Inventories consisted of the following as of September 30 (in thousands):


	2011		2010
Raw materials	$	1,369	$	1,140
Finished products		2,781		1,907

Total	$	4,150	$	3,047

Property and Equipment

Property and equipment are stated at cost, less any impairment, and are depreciated using the straight-line method over the estimated useful lives of the assets. The Company recorded depreciation expense of $5.6 million, $6.2 million and $3.8 million for the years ended September 30, 2011, 2010 and 2009, respectively.

The September 30, 2011 and 2010 balances in construction-in-progress include the cost of enhancing the capabilities of the Company’s Eden Prairie, Minnesota and Birmingham, Alabama facilities. As assets are placed in service, construction-in-progress is transferred to the specific property and equipment categories and depreciated over the estimated useful lives of the assets.

In the fourth quarter of fiscal 2011, 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).

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). The Company recognized an $0.8 million asset impairment charge associated with certain long-lived assets included in Laboratory fixtures and equipment where no ongoing business was expected in the foreseeable future based on market conditions. The Company also recognized a $0.4 million asset impairment charge associated with prototypes and other equipment related to a development project for which no ongoing business was expected in the foreseeable future in light of market conditions. In addition, the Company recorded a $1.3 million asset impairment charge associated with certain fixed asset costs located in Minnesota that were included in Construction-in-progress during fiscal 2010.

Property and equipment consisted of the following components as of September 30 (in thousands):


	Useful Life		2011			2010
	(In years)
Land			$	6,886		$	6,886
Laboratory fixtures and equipment		3 to 12		26,571			25,958
Buildings and improvements		1 to 39		25,184			47,084
Office furniture and equipment		3 to 10		5,591			5,879
Construction-in-progress				4,566			4,386
Less accumulated depreciation				(29,301	)		(24,798	)

Property and equipment, net			$	39,497		$	65,395

Other Assets

Other assets consist principally of strategic investments.

Other assets consisted of the following components as of September 30 (in thousands):


	2011		2010
Investment in OctoPlus	$	1,190	$	2,624
Investment in Nexeon MedSystems		285		285
Investment in ThermopeutiX		1,185		1,185
Investment in ViaCyte (formerly Novocell)		559		559
Other		323		590

Other assets, net	$	3,542	$	5,243

In January 2005, the Company made an initial equity investment of approximately $3.9 million in OctoPlus N.V. (“OctoPlus”), a company based in the Netherlands active in the development of pharmaceutical formulations incorporating novel biodegradable polymers. Subsequent investments brought the Company’s total investment to $6.0 million. In October 2006, OctoPlus common stock began trading on an international exchange following an initial public offering of its common stock. With a readily determinable fair market value, the Company now treats the investment in OctoPlus as an available-for-sale investment rather than a cost method investment. Available-for-sale investments are reported at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity, except for other-than-temporary impairments, which are reported as a charge to current operations, recorded in the other income (loss) section of the consolidated statements of operations, and resulting in a new cost basis for the investment. As of September 30, 2011, the investment in OctoPlus represented an ownership interest of less than 10%. The Company recorded no realized gain or loss related to this investment in fiscal 2011, 2010 or 2009. The Company recorded in comprehensive (loss) income an unrealized loss of $0.5 million and an unrealized gain of $0.9 million in fiscal 2011 and 2010, respectively, related to the OctoPlus investment. The Company recognized an impairment loss on the investment totaling $4.3 million in fiscal 2008 based on a significant decline in the stock price of OctoPlus as a result of market conditions. The cost basis in OctoPlus is $1.7 million after consideration of the fiscal 2008 impairment.

Beginning in May 2005, the Company has invested $1.2 million in ThermopeutiX, Inc. (“ThermopeutiX”), a California-based early stage company developing novel medical devices for the treatment of vascular and neurovascular diseases. In addition to the investment, SurModics has licensed its hydrophilic and hemocompatible coating technologies to ThermopeutiX for use with its devices. The Company’s investment in ThermopeutiX, which is accounted for under the cost method, represents an ownership interest of less than 20%. The Company does not exert significant influence over ThermopeutiX’s operating or financial activities.

The Company has invested a total of $5.2 million in ViaCyte, Inc., (“ViaCyte”), formerly Novocell, Inc., a privately-held California-based biotechnology firm that is developing a unique treatment for diabetes using coated islet cells, the cells that produce insulin in the human body. In fiscal 2006, the Company determined its investment in ViaCyte was impaired and that the impairment was other than temporary. Accordingly, the Company recorded an impairment loss of $4.7 million. The balance of the investment, $0.6 million, which is accounted for under the cost method, represents less than a 5% ownership interest. The Company does not exert significant influence over ViaCyte’s operating or financial activities.

In July 2007, the Company made equity investments in Paragon Intellectual Properties, LLC (“Paragon”) and Apollo Therapeutics, LLC (“Apollo”), a Paragon subsidiary, totaling $3.5 million. SurModics made an additional equity investment in fiscal 2008 totaling $2.5 million, based upon successful completion of specified development milestones. In October 2008, Paragon announced that it had restructured, moving from a limited liability company with seven subsidiaries to a single C-corporation named Nexeon MedSystems, Inc. (“Nexeon”). SurModics accounts for its investment in Nexeon under the cost method as the Company’s ownership is less than 20%, and the Company does not exert significant influence over Nexeon’s operating or financial activities. The Company made an additional cash investment in Nexeon of $0.5 million in fiscal 2009. In the fourth quarter of fiscal 2010, the Company held discussions with Nexeon management to understand the business status and outlook, valuations associated with potential new rounds of financing, operating metrics and other industry factors which impacted the Company’s assessment of the carrying value of this investment. As a result of its assessment, the Company recognized a $5.3 million impairment loss on this investment in fiscal 2010 as it was determined that the investment was other-than-temporarily impaired.

In August 2009, the Company invested $2.0 million in a medical technology company and made a follow-on investment of $0.5 million in March 2010. The Company recognized an impairment loss on this investment totaling $2.4 million in fiscal 2010, based on market valuations and a pending financing round for this company. The Company’s investment in the medical technology company is accounted for under the cost method, as the Company’s ownership interest is less than 20% and the Company does not exert significant influence over the medical technology company’s operating or financial activities. Another entity in which the Company had a strategic investment sold the majority of its assets in fiscal 2010, resulting in an impairment loss of $0.2 million to the Company in fiscal 2010. These investments are included in the category titled “Other” in the table above.

In the years ended September 30, 2011, 2010 and 2009, the Company recognized revenue of $0.1 million, $1.5 million and $1.4 million, respectively, from activity with companies in which it had a strategic investment.

Intangible Assets

Intangible assets consist principally of acquired patents and technology, customer relationships, licenses and trademarks. The Company recorded amortization expense of $1.5 million, $1.6 million, and $2.1 million for the years ended September 30, 2011, 2010 and 2009, respectively.

In the fourth quarter of fiscal 2011, 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.

In fiscal 2010, the Company recognized an asset impairment charge of $0.5 million associated with certain patent rights. Management applied the accounting guidance associated with long-lived assets and determined an impairment occurred for these assets as no ongoing business was expected in the foreseeable future based on market conditions.

The asset impairment charges in fiscal 2011 and 2010 are included in the asset impairment charges line in the consolidated statements of operations.

Intangible assets consisted of the following as of September 30 (in thousands):


	2011
	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists		9.4	$	7,050	$	(3,585	)	$	3,465
Core technology		17.0		5,118		(1,984	)		3,134
Patents and other		16.5		2,358		(655	)		1,703
Trademarks		1.0		20		(20	)		—

Subtotal				14,546		(6,244	)		8,302
Unamortized intangible assets:
Trademarks				580		—			580

Total			$	15,126	$	(6,244	)	$	8,882


	2010
	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists		9.7	$	8,657	$	(2,682	)	$	5,975
Core technology		17.4		8,330		(1,485	)		6,845
Patents and other		16.4		2,376		(519	)		1,857
Trademarks		1.0		20		(20	)		—

Subtotal				19,383		(4,706	)		14,677
Unamortized intangible assets:
Trademarks				580		—			580

Total			$	19,963	$	(4,706	)	$	15,257

Based on the intangible assets in service as of September 30, 2011, estimated amortization expense for each of the next five fiscal years is as follows (in thousands):


2012	$	1,075
2013		1,075
2014		1,075
2015		1,064
2016		927

Future amortization amounts presented above are estimates. Actual future amortization expense may be different, as a result of future acquisitions, impairments, changes in amortization periods or other factors.

Goodwill

Goodwill represents the excess of the cost of the acquired entities over the fair value assigned to the assets purchased and liabilities assumed in connection with the Company’s acquisitions. The carrying amount of goodwill is evaluated annually, and between annual evaluations if events occur or circumstances change indicating that the carrying amount of goodwill may be impaired.

The following table summarizes the changes in the carrying amount of goodwill (in thousands):


Balance at September 30, 2009	$	21,070
Payment related to a prior business acquisition		750
Goodwill impairment		(13,810	)

Balance at September 30, 2010	$	8,010
Payments related to a prior business acquisition		5,650
Goodwill impairment		(5,650	)

Balance at September 30, 2011	$	8,010

The Company has recognized cumulative goodwill impairment charges of $19.5 million as of September 30, 2011 associated with the SurModics Pharmaceuticals reporting unit.

The Company has determined that its reporting units are the SurModics Pharmaceuticals subsidiary, the In Vitro Diagnostics operations and the SurModics drug delivery and hydrophilic coatings operations known as the Medical Device business unit. The reporting units with goodwill resulted from the acquisitions of SurModics Pharmaceuticals and SurModics IVD, Inc. (formerly known as BioFX Laboratories, Inc.) (“SurModics IVD”) in fiscal 2007. Inherent in the determination of fair value of the reporting units are certain estimates and judgments, including the interpretation of current economic indicators and market valuations as well as the Company’s strategic plans with regard to its operations.

The $8.0 million of goodwill at September 30, 2011 is related to the In Vitro Diagnostics reporting unit. The Company performed its annual impairment test of goodwill as of August 31, 2011, and did not record any goodwill impairment charges as there were no indicators of impairment associated with the In Vitro Diagnostics reporting unit.

Evaluating goodwill for impairment in fiscal 2011 was based on new goodwill accounting guidance which was early adopted by the Company in the fourth quarter of fiscal 2011. The new accounting guidance involves assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test becomes unnecessary.

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.

During the Company’s annual test of goodwill as of August 31, 2010, the Company determined the goodwill related to its SurModics Pharmaceuticals reporting unit was fully impaired and it recognized a non-cash goodwill impairment charge of $13.8 million.

Prior to testing goodwill for impairment in fiscal 2010 the Company tested its definite-lived assets, property and equipment as well as intangible assets, under the provisions of the accounting guidance for impairment or disposal of long-lived assets, and determined that there were no impairments of these assets.

The goodwill impairment in fiscal 2010 reflected a significant decline in the estimated fair value of the Company’s reporting units, mainly 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 are 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. Prior to the fourth quarter, based on the Company’s outlook for future results and the fact that the market capitalization exceeded the Company’s book value by a margin of 64% at June 30, 2010, Company management did not believe that the events and circumstances in existence at interim reporting dates indicated it was more likely than not that the fair value of any of the Company’s reporting units would be less than its carrying amount.

In evaluating whether goodwill was impaired in fiscal 2010, the Company compared the fair value of the reporting units to which goodwill is assigned to their respective carrying values (Step 1 of the impairment test). In calculating fair value, the Company used the income approach as the primary indicator of fair value with the market approach used as a test of reasonableness. The income approach is a valuation technique under which the Company estimates future cash flows using the reporting units’ financial forecasts. Future estimated cash flows are discounted to their present value to calculate fair value. The market approach establishes fair value by comparing SurModics to other publicly traded guideline companies or by analysis of actual transactions of similar businesses or assets sold. The income approach is tailored to the circumstances of the Company’s business, and the market approach is completed as a secondary test to ensure that the results of the income approach are reasonable and in line with comparable companies in the industry. The summation of the reporting units’ fair values were compared and reconciled to the Company’s market capitalization as of the date of the impairment test.

In the situation where a reporting unit’s carrying amount exceeds its fair value, the amount of the impairment loss must be measured. The measurement of the impairment (Step 2 of the impairment test) is calculated by determining the implied fair value of a reporting unit’s goodwill. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. The goodwill impairment is measured as the excess of the carrying amount of goodwill over its implied fair value.

In determining the fair value of the SurModics Pharmaceuticals reporting unit under the income approach, the expected cash flows of SurModics Pharmaceuticals were affected by various assumptions. Fair value on a discounted cash flow basis used forecasts over a ten-year period with an estimation of residual growth rates thereafter. The Company uses its business plans and projections as the basis for expected future cash flows. The most significant assumptions incorporated in these forecasts for the fiscal 2010 goodwill impairment test included annual revenue changes based on then current customer programs and expected progression of these programs into different phases of development. A discount rate of 15% was used in the fiscal 2010 analysis to reflect the relevant risks of the higher growth assumed for this reporting unit. Given the significant difference between the reporting unit’s fair value and carrying value, any change in the discount rate would not have changed the evaluation of impairment.

In estimating the fiscal 2010 fair value of the Company under the market approach, management considered the relative merits of commonly applied market capitalization multiples based on the availability of data. Based on the analysis, the Company utilized the guideline public company method to support the valuation of the reporting units in fiscal 2010.

Based on the goodwill analysis performed as of August 31, 2010, goodwill in the SurModics Pharmaceuticals reporting unit failed Step 1 of the impairment test and Step 2 of the impairment test indicated that goodwill was fully impaired. The indicated excess in fair value over carrying value of the Company’s In Vitro Diagnostics reporting unit in Step 1 of the impairment test at August 31, 2010 was approximately 82% and as such the $8.0 million of goodwill related to this reporting unit was not impaired. The SurModics drug delivery and hydrophilic coatings operations do not have any goodwill and were included in the analysis to assist in reconciling the fair value of all reporting units to the Company’s market capitalization at August 31, 2010.

The Company did not record any goodwill impairment charges during fiscal 2009.

Valuation of Long-Lived Assets

Accounting guidance requires the Company to periodically evaluate whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of long-lived assets, such as property and equipment and intangibles with finite lives. If such events or circumstances were to indicate that the carrying amount of these assets may not be recoverable, the Company would estimate the future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) were less than the carrying amount of the assets, the Company would recognize an impairment charge to reduce such assets to their fair value. See the Property and Equipment, Other Assets and Intangible Assets sections in Note 2 for further information on impairments that were recognized in fiscal 2011 and 2010.

Revenue Recognition

The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) shipment has occurred or delivery has occurred if the terms specify destination; (3) the sales price is fixed or determinable; and (4) collectability is reasonably assured. When there are additional performance requirements, revenue is recognized when all such requirements have been satisfied. Under revenue arrangements with multiple deliverables, the Company recognizes each separable deliverable as it is earned.

The Company’s revenue is derived from three primary sources: (1) royalties and license fees from licensing its proprietary drug delivery and surface modification technologies to customers; (2) the sale of polymers and reagent chemicals, stabilization products, antigens, substrates and microarray slides to the diagnostics and biomedical research industries; and (3) research and development fees generated on customer projects.

Taxes collected from customers and remitted to governmental authorities are excluded from revenue and amounted to $0.1 million, $0.1 million and $0.2 million for the years ended September 30, 2011, 2010 and 2009, respectively.

Royalties and license fees. The Company licenses technology to third parties and collects royalties. Royalty revenue is generated when a customer sells products incorporating the Company’s licensed technologies. Royalty revenue is recognized as licensees report it to the Company, and payment is typically submitted concurrently with the report. For stand-alone license agreements, up-front license fees are recognized over the term of the related licensing agreement. Minimum royalty fees are recognized in the period earned.

Revenue related to a performance milestone is recognized upon the achievement of the milestone, as defined in the respective agreements and provided the following conditions have been met:

•

The milestone payment is non-refundable;

•

The milestone involved a significant degree of risk, and was not reasonably assured at the inception of the arrangement;

•

Accomplishment of the milestone involved substantial effort;

•

The amount of the milestone payment is commensurate with the related effort and risk; and

•

A reasonable amount of time passed between the initial license payment and the first and subsequent milestone payments.

If these conditions have not been met, the milestone payment is deferred and recognized over the term of the agreement.

Product sales. Product sales to third parties are recognized at the time of shipment, provided that an order has been received, the price is fixed or determinable, collectability of the resulting receivable is reasonably assured and returns can be reasonably estimated. The Company’s sales terms provide no right of return outside of the standard warranty policy. Payment terms are generally set at 30-45 days.

Research and development. The Company performs third party research and development activities, which are typically provided on a time and materials basis. Generally, revenue for research and development is recorded as performance progresses under the applicable contract.

Arrangements with multiple deliverables. Prior to October 1, 2009, arrangements such as license and development agreements were analyzed to determine whether the deliverables, which often include a license and performance obligations such as research and development, could be separated, or whether they must be accounted for as a single unit of accounting in accordance with accounting guidance.

The Company had one significant multiple element arrangement prior to October 1, 2009 that was accounted for as a single unit of accounting resulting in deferral and recognition of all related payments received for license and research and development activities using a time-based model. This arrangement was terminated during the first quarter of fiscal 2009 as described in Note 2 below.

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

The Company elected to early adopt this accounting guidance at the beginning of its first quarter of fiscal 2010, on a prospective basis, for applicable transactions originating or materially modified on or after October 1, 2009. In connection with the adoption of the amended accounting standard the Company also changed its policy prospectively for multiple element arrangements, whereby the Company accounts for revenue using a multiple attribution model in which consideration allocated to research and development activities is recognized as performed, and milestone payments are recognized when the milestone events are achieved, when such activities and milestones are deemed substantive. Accordingly, in situations where a unit of accounting includes both a license and research and development activities, and when a license does not have stand-alone value, the Company applies a multiple attribution model in which consideration allocated to the license is recognized ratably, consideration allocated to research and development activities is recognized as performed and milestone payments are recognized when the milestone events are achieved, when such activities and milestones are deemed substantive.

The Company enters into license and development arrangements that may consist of multiple deliverables which could include a license(s) to SurModics’ technology, research and development activities, manufacturing services, and product sales based on the needs of its customers. For example, a customer may enter into an arrangement to obtain a license to SurModics’ intellectual property which may also include research and development activities, and supply of products manufactured by SurModics. For these services provided, SurModics could receive upfront license fees upon signing of an agreement and granting the license, fees for research and development activities as such activities are performed, milestone payments contingent upon advancement of the product through development and clinical stages to successful commercialization, fees for manufacturing services and supply of product, and royalty payments based on customer sales of product incorporating SurModics’ technology. The Company’s license and development arrangements generally do not have refund provisions if the customer cancels or terminates the agreement. Typically all payments made are non-refundable.

Under the accounting guidance, the Company is still required to evaluate each deliverable in a multiple element arrangement for separability. The Company is then required to allocate revenue to each separate deliverable using a hierarchy of VSOE, TPE, or ESP. In many instances, the Company is not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be a result of the Company infrequently selling each element separately or having a limited history with multiple element arrangements. When VSOE cannot be established, the Company attempts to establish a selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately.

When the Company is unable to establish a selling price using VSOE or TPE, the Company uses ESP in its allocation of arrangement consideration. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. ESP is generally used for highly customized offerings.

The Company determines ESP for undelivered elements by considering multiple factors including, but not limited to, market conditions, competitive landscape and past pricing arrangements with similar features. The determination of ESP is made through consultation with the Company’s management, taking into consideration the marketing strategies for each business unit.

The Company’s accounting policies under the previous accounting guidance, applicable for fiscal 2009, would have resulted in partial recognition of the research and development revenue in the current periods with the remainder deferred and recognized over the economic life of the technology. Under the new accounting guidance, effective for fiscal 2011 and 2010, the Company is recognizing research and development revenue as the activities are performed. The Company notes that this new accounting guidance will result in current revenue recognition of research and development activities in the period the activities are performed with the revenue generated changing from period to period based on the stage of project development. The amount of revenue that is recognized could be material in any reporting period.

Merck Agreement. In June 2007, the Company entered into a License and Research Collaboration Agreement and separate Supply Agreement with Merck & Co., Inc. (“Merck”). The agreement called for SurModics and Merck to pursue the joint development and commercialization of SurModics’ I-vation sustained drug delivery system with TA (“triamcinolone acetonide”), and other products combining certain of Merck’s proprietary drug compounds and the I-vation system for the treatment of serious retinal diseases. Under the terms of the agreement, Merck led and funded development and commercialization activities. In September 2008, following a strategic review of Merck’s business and product development portfolio, Merck gave notice to SurModics that it was terminating the collaborative license and research agreement, as well as the supply agreement entered into in June 2007. The termination was effective in December 2008. The Company recognized all remaining deferred revenue related to the Merck agreement, totaling $34.8 million, as revenue in fiscal 2009. The Company also recognized a $9.0 million milestone payment from Merck associated with the termination of the triamcinolone acetonide development program in fiscal 2009.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets, with deferred revenue to be recognized beyond one year being classified as non-current deferred revenue. As of September 30, 2011 and 2010, the Company had deferred revenue of $4.2 million for both periods.

Costs related to products and services delivered are recognized in the period revenue is recognized except for services related to the Merck agreement, which were recognized as incurred. Customer advances are accounted for as a liability until all criteria for revenue recognition have been met.

Customer Concentrations

The Company’s licensed technologies provide royalty revenue, which represents the largest revenue stream to the Company. The Company has licenses with a diverse base of customers and certain customers have multiple products using the Company’s technology. Medtronic, Inc. (“Medtronic”) is the Company’s largest customer at 15% of total revenue for fiscal 2011. Medtronic has several separately licensed products that generate royalty revenue for the Company. In addition, there has been a decline in royalty revenue from one of the Company’s largest customers, Cordis Corporation, a subsidiary of Johnson & Johnson (“Cordis”), and with Cordis’ June 2011 announcement of the cessation of the manufacture of the CYPHER^® and CYPHER SELECT^® Plus stents by the end of 2011, the Company’s royalty stream from this customer reached the contractual $1.0 million minimum quarterly level per the agreement in the third and fourth quarters of fiscal 2011. No other individual customer product using licensed technology constitutes more than 5% of the Company’s total revenue. Further, the Company’s licensing agreements with many of its customers, including most of its significant customers, cover many licensed products that each separately generate royalty revenue. This situation reduces the potential risk to the Company’s operations that may result from reduced sales (or the termination of a license) of a single product for any specific customer.

Research and Development

Research and development costs are expensed as incurred. Some research and development costs are related to third party contracts, and the related revenue is recognized as described in “Revenue Recognition” above. The research and development costs are presented in the consolidated statements of operations in two categories; those associated with customer-related projects and those associated with other research and development costs.

Costs associated with customer-related research and development include specific project direct labor costs and material expenses as well as an allocation of overhead costs based on direct labor dollars.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.

New Accounting Pronouncements

In September 2011, the FASB issued changes to existing goodwill impairment testing guidance and permitted early adoption. The new accounting guidance involves assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then moving to the next phase, the two-step impairment test is unnecessary. The Company elected to early adopt the new guidance for its annual impairment testing in the fourth quarter of fiscal 2011.

In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. These changes become effective for the Company on October 1, 2012 (fiscal 2013). Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, management has determined these changes will not have an impact on the consolidated financial statements.

In May 2011, the FASB issued changes to conform existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. These changes both clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and disclosure of quantitative information about unobservable inputs used for Level 3 fair value measurements. The amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. These changes become effective for the Company on January 1, 2012 (fiscal 2012). Management is currently evaluating the potential impact of these changes on the consolidated financial statements.

No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s consolidated financial statements.

Fair Value Measurements

12 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The accounting guidance on fair value measurements defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. The guidance is applicable for all financial assets and financial liabilities and for all nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

Fair Value Hierarchy

Accounting guidance on fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

The Company’s Level 1 asset consists of its investment in OctoPlus (see Note 2 for further information). The fair market value of this investment is based on the quoted price of OctoPlus shares as traded on the Amsterdam Stock Exchange.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

The Company’s Level 2 assets consist of money market funds, U.S. Treasury securities, corporate bonds, municipal bonds, U.S. government agency securities, government agency and municipal securities and certain asset-backed and mortgage-backed securities. Fair market values for these assets are based on quoted vendor prices and broker pricing where all significant inputs are observable.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The Company’s Level 3 assets include certain asset-backed and mortgage-backed securities. The fair market values of these investments were determined by broker pricing where not all significant inputs were observable.

In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company did not significantly change its valuation techniques from prior periods.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 (in thousands):


	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value as of September 30, 2011
Assets:
Cash equivalents	$	—	$	8,419	$	—	$	8,419
Available-for-sale debt securities:
U.S. government and government agency obligations		—		30,604		—		30,604
Mortgage-backed securities		—		3,933		15		3,948
Municipal bonds		—		3,614		—		3,614
Asset-backed securities		—		1,278		9		1,287
Corporate bonds		—		2,497		—		2,497
Other assets		1,190		—		—		1,190

Total assets measured at fair value	$	1,190	$	50,345	$	24	$	51,559

The consolidated balance sheets include held-to-maturity investments totaling $3.0 million as of September 30, 2011. Held-to-maturity investments are carried at amortized cost.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2010 (in thousands):


	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value as of September 30, 2010
Assets:
Cash equivalents	$	—	$	10,128	$	—	$	10,128
Available-for-sale debt securities:
U.S. government and government agency obligations		—		25,626		704		26,330
Mortgage-backed securities		—		4,757		69		4,826
Municipal bonds		—		3,150		—		3,150
Asset-backed securities		—		1,113		—		1,113
Corporate bonds		—		5,852		—		5,852
Other assets		2,624		—		—		2,624

Total assets measured at fair value	$	2,624	$	50,626	$	773	$	54,023

Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

The following tables provide a reconciliation of fiscal 2011 and 2010 financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands). Transfers of instruments into and out of Level 3 are based on beginning of year values.


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Year Ended September 30, 2011 Available-for-Sale Debt Securities
	U.S. Government Obligations			Mortgage- Backed Securities			Asset- Backed Securities			Total
Balance at September 30, 2010	$	704		$	69		$	—		$	773
Transfers into Level 3		—			17			14			31
Transfers out of Level 3		(695	)		(68	)		—			(763	)
Total realized and unrealized gains (losses):
Included in other comprehensive (loss) income		19			(3	)		(3	)		13
Purchases, issuances, sales and settlements, net		(28	)		—			(2	)		(30	)

Balance at September 30, 2011	$	—		$	15		$	9		$	24


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Year Ended September 30, 2010 Available-for-Sale Debt Securities
		U.S. Government Obligations			Mortgage- Backed Securities			Total
Balance at September 30, 2009		$	1,130		$	73		$	1,203
Transfers into Level 3			—			148			148
Transfers out of Level 3			(36	)		(145	)		(181	)
Total realized and unrealized gains (losses):
Included in other comprehensive (loss) income			(33	)		3			(30	)
Purchases, issuances, sales and settlements, net			(357	)		(10	)		(367	)

Balance at September 30, 2010		$	704		$	69		$	773

As of September 30, 2011, marketable securities measured at fair value using Level 3 inputs comprised less than $50,000 and included one asset-backed security and one mortgage-backed security within the Company’s available-for-sale investment portfolio. These securities were measured using observable market data and Level 3 inputs as a result of the lack of market activity and liquidity. The fair value of these securities was based on the Company’s assessment of the underlying collateral and the creditworthiness of the issuer of the securities.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company’s investments in non-marketable securities of private companies are accounted for using the cost method as the Company does not exert significant influence over the investees’ operating or financial activities. These investments, as well as held-to-maturity securities, are measured at fair value on a non-recurring basis when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of non-marketable equity investments in private companies has occurred and is other than temporary, an assessment is made by considering available evidence, including the general market conditions in the investee’s industry, the investee’s product development status and subsequent rounds of financing and the related valuation and/or the Company’s participation in such financings. The Company also assesses the investee’s ability to meet business milestones and the financial condition and near-term prospects of the individual investee, including the rate at which the investee is using its cash and the investee’s need for possible additional funding at a potentially lower valuation. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment and are Level 3 inputs.

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 current 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. However, the Company’s assessment of options available as of September 30, 2011 resulted in a probability-weighted value of expected future cash flows below the carrying value, which required the Company to determine the fair value of the long-lived assets of the Pharmaceuticals segment using the probability-weighted value of the expected future cash flows. Subsequently, on November 1, 2011, the Company announced that it entered into a definitive agreement to sell substantially all of its Pharmaceuticals assets for $30.0 million and the sale closed on November 17, 2011. See Note 1 for further information regarding the sale of SurModics Pharmaceuticals.

The Company wrote down three investments totaling $7.9 million in the year ended September 30, 2010, as the investments were deemed to be other-than-temporarily impaired. A pending round of financing at a substantially lower valuation at one of the private companies resulted in impairment loss of $2.4 million. Another company sold off assets in light of current market conditions and this action resulted in impairment loss of $0.2 million. In addition, an impairment loss of $5.3 million was recognized related to a third company, which continues to face operational and financing difficulties and potential rounds of financing at lower valuations. Management utilized Level 3 inputs which included information about pending financings as well as market input to determine the fair value of these investments.

The Company also recognized long-lived asset impairment charges totaling $4.9 million in fiscal 2010. Fair value measurements used in the impairment reviews of property and equipment and intangible assets are Level 3 measurements that require management judgment. 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. The $2.1 million carrying value of this facility was based on a real estate market appraisal obtained during the Company’s negotiations.

The Company also recorded a $1.3 million asset impairment charge in fiscal 2010 associated with certain long-lived assets where no ongoing business is expected in the foreseeable future based on current market conditions. Furthermore, a $1.3 million asset impairment charge associated with certain fixed asset costs located in Minnesota and a $0.4 million asset impairment charge associated with prototypes and other equipment related to a development project for which no ongoing business was expected in the foreseeable future in light of market conditions were also recognized. The assets associated with these charges had limited remaining value and as such were written down to zero value.

See Note 2 for additional information related to these impairments

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-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 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-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 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-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 Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-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 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-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 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-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 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-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 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
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-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

+ Details

Acquisition

12 Months Ended

Sep. 30, 2011

Acquisition [Abstract]

Acquisition

4. Acquisition

PR Pharmaceuticals, Inc. On November 4, 2008, the Company’s SurModics Pharmaceuticals subsidiary entered into an asset purchase agreement with PR Pharmaceuticals, Inc. (“PR Pharma”), whereby it acquired certain contracts and assets of PR Pharma for $5.6 million consisting of $2.9 million in cash on the closing date, additional consideration of $2.4 million (paid in fiscal 2009) based on successful achievement of specified milestones and $0.3 million in transaction costs. The sellers of PR Pharma are still eligible to receive up to an additional $3.0 million in cash based on successful achievement of specified milestones for successful patent issuances and product development. Potential milestones of $0.6 million were not earned and lapsed in fiscal 2011. The Company agreed to indemnify Evonik for certain contingent consideration obligations when it sold substantially all of the SurModics Pharmaceuticals assets to Evonik on November 17, 2011. The purchase price was allocated as follows as of November 4, 2008 (in thousands):


Core technology	$	1,400
Customer relationships		900
In-process research and development		3,200
Trade names		20
Non-compete agreements		50

Total purchase price	$	5,570

The acquired developed technology is being amortized on a straight-line basis over 18 years, customer relationships are being amortized over nine years, and non-compete agreements were amortized over two years. The trade names had a life of less than one year and were fully amortized in fiscal 2009. As part of the acquisition, the Company recognized fair value associated with in-process research and development (“IPR&D”) of $3.2 million. The IPR&D was expensed on the date of acquisition and relates to polymer-based drug delivery systems. The value assigned to IPR&D is related to projects for which the related products have not achieved commercial feasibility and have no future alternative use. The amount of purchase price allocated to IPR&D was based on estimating the future cash flows of each project and discounting the net cash flows back to their present values.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 88-16
-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 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141
-Paragraph 51, 52
-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 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Appendix F
-Paragraph F4
-Subparagraph e

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Paragraph 67-73
-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 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e7008-128479

Reference 8: http://www.xbrl.org/2003/role/presentationRef
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 20
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4926-128472

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 16: http://www.xbrl.org/2003/role/presentationRef
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Reference 17: http://www.xbrl.org/2003/role/presentationRef
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Reference 18: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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Reference 19: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Revolving Credit Facility

12 Months Ended

Sep. 30, 2011

Revolving Credit Facility [Abstract]

Revolving Credit Facility

5. Revolving Credit Facility

In February 2011, the Company extended its unsecured revolving credit facility through March 2012 and reduced the credit facility to $15.0 million. Borrowings under the credit facility, if any, will bear interest at a benchmark rate plus an applicable margin based upon the Company’s funded debt to EBITDA ratio. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of September 30, 2011, the Company had no debt outstanding under the credit facility and was in compliance with all covenants.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References + Details

Stockholders Equity

12 Months Ended

Sep. 30, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

6. Stockholders’ Equity

The Company has stock-based compensation plans under which it grants stock options, restricted stock awards and performance share awards. Accounting guidance requires all share-based payments to be recognized as an operating expense, based on their fair values, over the requisite service period. The Company’s stock-based compensation expenses for the years ended September 30 were allocated to the following expense categories (in thousands):


	2011		2010		2009
Product	$	213	$	139	$	87
Customer research and development		372		772		815
Other research and development		983		2,399		2,806
Selling, general and administrative		2,684		2,565		3,145

Total	$	4,252	$	5,875	$	6,853

As of September 30, 2011, approximately $4.3 million of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of approximately 2.5 years. The unrecognized compensation costs above exclude $1.0 million associated with performance share awards that are currently not anticipated to be fully expensed because the performance conditions are not expected to be met.

Stock Option Plans

The Company uses the Black-Scholes option pricing model to determine the weighted average grant date fair value of stock options granted. The weighted average per share fair value of stock options granted during fiscal 2011, 2010 and 2009 was $3.96, $6.78, and $8.95, respectively. The assumptions used as inputs in the model for the years ended September 30 were as follows:


	2011			2010			2009
Risk-free interest rates		1.45	%		1.95	%		2.30	%
Expected life		4.8 years			4.8 years			4.8 years
Expected volatility		45	%		41	%		40	%
Dividend yield		0	%		0	%		0	%

The risk-free interest rate assumption was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award. The expected life of options granted is determined based on the Company’s experience. Expected volatility is based on the Company’s stock price movement over a period approximating the expected term. Based on management’s judgment, dividend rates are expected to be zero for the expected life of the options. The Company also estimates forfeitures of options granted, which are based on historical experience.

The Company’s Incentive Stock Options (“ISO”) are granted at a price of at least 100% of the fair market value of the common stock of the Company on the date of the grant or 110% with respect to optionees who own more than 10% of the total combined voting power of all classes of stock. ISOs generally expire in seven years or upon termination of employment and generally are exercisable at a rate of 20% per year commencing one year after the date of grant. Non-qualified stock options are granted at fair market value on the date of grant. Non-qualified stock options expire in seven to ten years or upon termination of employment or service as a Board member. Non-qualified stock options granted prior to May 2008 generally become exercisable with respect to 20% of the shares on each of the first five anniversaries following the grant date, and nonqualified stock options granted subsequent to April 2008 generally become exercisable with respect to 25% of the shares on each of the first four anniversaries following the grant date. Shareholders approved the 2009 Equity Incentive Plan (“2009 Plan”) at the February 8, 2010 Annual Meeting of Shareholders. The 2009 Plan has 1,500,000 shares authorized, plus the number of shares that have not yet been awarded under the 2003 Equity Incentive Plan, or were awarded and subsequently returned to the pool of available shares under the 2003 Equity Incentive Plan pursuant to its terms. At September 30, 2011, there were 1,433,000 shares available for future awards. As of September 30, 2011, the aggregate intrinsic value of the option shares outstanding and option shares exercisable was not meaningful, as the Company’s stock price of $9.10 per share on September 30, 2011 was below the value of option shares outstanding and exercisable. At September 30, 2011, the average remaining contractual life of options outstanding and options exercisable was 4.1 and 2.8 years, respectively. There were no stock options exercised in fiscal 2011. There was no intrinsic value associated with options exercised during fiscal 2010 as the Company’s stock price of $11.92 per share on September 30, 2010 was below the value of options exercised. The intrinsic value of options exercised during fiscal 2009 was $0.2 million.


	Number of Shares			Weighted Average Exercise Price
Outstanding at September 30, 2008		1,522,790		$	34.26
Granted		268,700			24.06
Exercised		(17,600	)		8.82
Forfeited		(104,320	)		35.33

Outstanding at September 30, 2009		1,669,570		$	32.82
Granted		388,635			22.88
Exercised		(20,350	)		20.74
Forfeited		(545,534	)		30.58

Outstanding at September 30, 2010		1,492,321		$	31.22
Granted		551,773			9.96
Exercised		—			—
Forfeited		(528,906	)		25.15

Outstanding at September 30, 2011		1,515,188		$	25.59
Exercisable at September 30, 2011		838,160		$	32.91

Restricted Stock Awards

The Company has entered into restricted stock agreements with certain key employees, covering the issuance of common stock (Restricted Stock). Under accounting guidance these shares are considered to be non-vested shares. The Restricted Stock will be released to the key employees if they are employed by the Company at the end of the vesting period. Compensation has been recognized for the estimated fair value of the 72,627 common shares and is being charged to income over the vesting term. The stock-based compensation table includes the Restricted Stock expenses recognized related to these awards, which totaled $0.9 million, $1.0 million and $1.8 million during fiscal 2011, 2010 and 2009, respectively.


	Number of Shares			Weighted Average Grant Price
Balance at September 30, 2008		157,129		$	36.06
Granted		7,700			23.93
Vested		(59,047	)		34.44
Forfeited		(4,887	)		41.91

Balance at September 30, 2009		100,895		$	35.80
Granted		30,440			18.49
Vested		(83,195	)		36.32
Forfeited		(7,068	)		33.39

Balance at September 30, 2010		41,072		$	22.33
Granted		66,533			10.01
Vested		(23,978	)		19.38
Forfeited		(11,000	)		20.79

Balance at September 30, 2011		72,627		$	12.25

Performance Share Awards

The Company has entered into Performance Share agreements with certain key employees, covering the issuance of common stock (“Performance Shares”). The Performance Shares vest upon the achievement of all or a portion of certain performance objectives, which must be achieved during the performance period. Compensation is recognized in each period based on management’s best estimate of the achievement level of the grants’ specified performance objectives and the resulting vesting amounts. In fiscal 2011, the Company recognized expense of $0.2 million related to 80,695 three-year Performance Shares awarded in November and December 2010 and 591 Performance Shares that vested for a certain individual that met specific performance objectives. In fiscal 2010, the Company recognized expense of less than $0.1 million related to specific performance objectives achieved by certain individuals. In fiscal 2009, the Company reversed expenses previously recognized of $0.2 million relating to three-year Performance Shares awarded in May 2008 and one-year Performance Shares awarded in September 2008, which was partially offset by an expense of $0.2 million related to the estimated value of Performance Shares awarded to individuals based on likely achievement of specific performance objectives. The stock-based compensation table includes the Performance Shares expenses.

1999 Employee Stock Purchase Plan

Under the 1999 Employee Stock Purchase Plan (“Stock Purchase Plan”), the Company is authorized to issue up to 400,000 shares of common stock. The number of authorized shares was increased by 200,000 effective with shareholder approval at the February 8, 2010 Annual Meeting. All full-time and part-time employees can choose to have up to 10% of their annual compensation withheld, with a limit of $25,000, to purchase the Company’s common stock at purchase prices defined within the provision of the Stock Purchase Plan. As of September 30, 2011 and 2010, there were less than $0.1 million and $0.3 million of employee contributions, respectively, included in accrued liabilities in the accompanying consolidated balance sheets. Stock compensation expense recognized related to the Stock Purchase Plan totaled $0.2 million, $0.3 million and $0.3 million, during fiscal 2011, 2010 and 2009, respectively. The stock-based compensation table includes the Stock Purchase Plan expenses.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-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 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-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 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-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 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-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 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
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-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

Reference 13: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 16: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 17: http://www.xbrl.org/2003/role/presentationRef
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Reference 20: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Paragraph 2
-Subparagraph (SAB TOPIC 4.E)
-URI http://asc.fasb.org/extlink&oid=6228006&loc=d3e74512-122707

Reference 21: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Glossary Preferred Stock
-URI http://asc.fasb.org/extlink&oid=6521494

Reference 22: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
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-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.29-31)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 23: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 4
-Subparagraph (SAB TOPIC 4.C)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770

+ Details

Restructuring Charges

12 Months Ended

Sep. 30, 2011

Restructuring Charges [Abstract]

Restructuring Charges

7. Restructuring Charges

In August 2011, the Company announced a realignment of its business to optimize the Company’s resources according to its strategic plan. As a result of the organizational change, the Company eliminated approximately 9% of its workforce. These employee terminations occurred across various functions, and the reorganization plan was completed by the end of the fourth quarter of fiscal 2011. The Company recorded total pre-tax restructuring charges of $1.0 million in the fourth quarter of fiscal 2011, which consisted of $1.0 million of severance pay and benefits expenses.

In October 2010, the Company announced initiatives to reduce its cost structure and renew its focus on business units to more closely match operations and cost structure with the current customer environment. As a result of the organizational change, the Company eliminated 30 positions, or approximately 13% of its workforce. These employee terminations occurred across various functions, and the reorganization plan was completed by the end of the first quarter of fiscal 2011. The reorganization also resulted in SurModics vacating a leased production facility in Birmingham, Alabama and relocating the production activities to one of its owned facilities in Birmingham. The Company recorded total pre-tax restructuring charges of $1.2 million in the first quarter of fiscal 2011, which consisted of $1.2 million of severance pay and benefits expenses and less than $0.1 million of facility-related costs.

In March 2010, the Company announced an organizational change designed to support future growth by better meeting customer needs, leveraging its multiple competencies across the organization, and building on its pharmaceutical industry experience. As a result of the reorganization, the Company eliminated 11 positions, or approximately 4% of the Company’s workforce. These employee terminations occurred across various functions and the reorganization plan was completed by the end of the third quarter of fiscal 2010. The Company also vacated and subleased its leased sales office in Irvine, California and vacated a leased warehouse in Birmingham, Alabama, as part of the reorganization plan. Both leased spaces were vacated by March 31, 2010. The Company recorded total pre-tax restructuring charges of approximately $1.3 million in connection with the fiscal 2010 reorganization, which consisted of $0.8 million of severance pay and benefits expenses and $0.5 million of facility-related costs.

In November 2008, the Company announced a functional reorganization to allow the Company to better serve its customers and improve its operating performance. As a result of the reorganization, the Company eliminated 15 positions, or approximately 5% of the Company’s workforce. These employee terminations occurred across various functions and the reorganization plan was completed by the end of the first quarter of fiscal 2009. The Company also vacated a leased facility in Eden Prairie, Minnesota, consolidating into its owned office and research facility also in Eden Prairie, as part of the reorganization plan. The Company recorded total pre-tax restructuring charges of approximately $1.8 million in connection with the fiscal 2009 reorganization, which consisted of $0.5 million of severance pay and benefits expenses and $1.3 million of facility-related costs.

Cash payments related to all restructuring events totaled $2.4 million in fiscal 2011, resulting in a restructuring accrual balance of $1.0 million at September 30, 2011.

The following table summarizes the restructuring accrual activity (in thousands):


	Employee Severance and Benefits			Facility- Related Costs			Total
Balance at September 30, 2008	$	—		$	—		$	—
Accruals during the year		513			1,250			1,763
Cash payments		(513	)		(295	)		(808	)

Balance at September 30, 2009	$	—		$	955		$	955
Accruals during the year		818			488			1,306
Cash payments		(814	)		(264	)		(1,078	)

Balance at September 30, 2010	$	4		$	1,179		$	1,183
Accruals during the year		2,181			62			2,243
Cash payments		(1,455	)		(991	)		(2,446	)

Balance at September 30, 2011	$	730		$	250		$	980

The charges above have been shown separately as restructuring charges on the consolidated statements of operations. The remaining accrual relates to the fiscal 2011 and 2010 restructurings and is expected to be paid within the next 27 months. As such, the current portion totaling $0.9 million is recorded as a current liability within other current liabilities and the long-term portion totaling $0.1 million is recorded as a long-term liability within other long-term liabilities on the consolidated balance sheet at September 30, 2011.

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

+ References + Details

Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The Company accounts for income taxes under the asset and liability method prescribed in accounting guidance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

Income taxes in the accompanying consolidated statements of operations for the fiscal years ended September 30 are as follows (in thousands):


	2011			2010			2009
Current provision (benefit):
Federal	$	2,706		$	(331	)	$	12,257
State and foreign		212			277			1,362

Total current provision (benefit)		2,918			(54	)		13,619
Deferred (benefit) provision :
Federal		(9,983	)		1,019			7,483
State		(1,097	)		(535	)		872

Total deferred (benefit) provision		(11,080	)		484			8,355

Total (benefit) provision	$	(8,162	)	$	430		$	21,974

The reconciliation of the difference between amounts calculated at the statutory federal tax rate for the fiscal years ended September 30 and the Company’s effective tax rate is as follows (in thousands):


	2011			2010			2009
Amount at statutory federal income tax rate	$	(9,334	)	$	(7,231	)	$	20,833
Change because of the following items:
State taxes		(2,033	)		(209	)		1,206
Stock-based compensation		—			276			416
Valuation allowance		1,521			2,780			—
Goodwill impairment		1,978			4,834			—
Other		(294	)		(20	)		(481	)

Income tax (benefit) provision	$	(8,162	)	$	430		$	21,974

The components of deferred income taxes consisted of the following as of September 30 and result from differences in the recognition of transactions for income tax and financial reporting purposes (in thousands):


	2011			2010
Depreciable assets	$	3,918		$	(5,795	)
Deferred revenue		1,606			1,666
Accruals and reserves		1,257			780
Stock options		7,469			5,947
Impaired investments		6,151			6,130
Unrealized losses (gains) on investments		96			(563	)
Other		1,686			1,211
Valuation allowance		(8,044	)		(6,523	)

Total deferred tax assets		14,139			2,853
Less current deferred tax assets		(1,444	)		(247	)

Noncurrent deferred tax assets	$	12,695		$	2,606

In fiscal 2011 and 2010, the Company recorded valuation allowances of $1.5 million and $3.1 million, respectively, related to deferred tax assets. The fiscal 2011 valuation allowance relates to state deferred tax assets associated with Pharmaceuticals asset impairment charges and state net operating losses based on the uncertainty regarding the realization of certain state deferred tax assets. The fiscal 2010 valuation allowance primarily relates to deferred tax assets associated with potential capital losses created by the impairment of the Company’s investments in Nexeon and two additional medical technology companies (see Note 2 for further information). The fiscal 2010 valuation allowances were recorded because the Company does not currently foresee future capital gains within the allowable carryforward and carryback periods to offset these capital losses when they were recognized. As such, no tax benefit has been recorded in the consolidated statements of operations.

Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes pursuant to accounting guidance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	2011			2010			2009
Beginning of fiscal year	$	1,948		$	2,042		$	1,540
Increases in tax positions for prior years		3			—			280
Decreases in tax positions for prior years		(85	)		(104	)		(7	)
Increases in tax positions for current year		55			92			260
Settlements with taxing authorities		(53	)		—			—
Lapse of the statute of limitations		(304	)		(82	)		(31	)

End of fiscal year	$	1,564		$	1,948		$	2,042

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate as of September 30, 2011, 2010 and 2009, respectively, are $1.6 million, $1.9 million and $2.0 million. Currently, the Company does not expect the liability for unrecognized tax benefits to change significantly in the next 12 months with the above balances classified on the consolidated balance sheets in other long-term liabilities. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of September 30, 2011, 2010 and 2009, a gross balance of $0.8 million, $0.7 million and $0.6 million, respectively, has been accrued related to the unrecognized tax benefits balance for interest and penalties.

The Company files income tax returns, including returns for its subsidiaries, in the United States (“U.S.”) federal jurisdiction and in various state jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. income tax return for fiscal 2010 in the first quarter of fiscal 2012. The IRS completed an examination of the Company’s U.S. income tax return for fiscal 2009 and a payment was made in the third quarter of fiscal 2011 associated with timing adjustments. U.S. income tax returns for fiscal 2007 and 2008 remain subject to examination by federal tax authorities. Tax returns for state and local jurisdictions for fiscal years 2003 through 2010 remain subject to examination by state and local tax authorities.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-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 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 43, 44, 45, 46, 47, 48, 49
-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 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

+ Details

Commitments and Contingencies

12 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

Litigation. From time to time, the Company has been, and may become, involved in various legal actions involving its operations, products and technologies, including intellectual property and employment disputes. The outcomes of these legal actions are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, including injunctions barring the sale of products that are the subject of the lawsuit, which, if granted, could require significant expenditures or result in lost revenue. The Company records a liability in the consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate, the minimum amount of the range is accrued. If a loss is possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded.

SRI Litigation. On July 31, 2009, the Company’s SurModics Pharmaceuticals subsidiary was named as a defendant in litigation pending in the circuit court of Jefferson County, Alabama, between SRI and two of SRI’s former employees (the “Plaintiffs”). In the litigation, the Plaintiffs allege that they contributed to or invented certain intellectual property while they were employed at SRI, and pursuant to SRI’s policies then in effect, they are entitled to, among other things, a portion of the purchase price consideration paid by the Company to SRI as part of the Company’s acquisition of SurModics Pharmaceuticals pursuant to a stock purchase agreement made effective on July 31, 2007 (the “Stock Purchase Agreement”). The Plaintiffs have also alleged that they are entitled to a portion of the intellectual property income derived from license agreements with certain customers of SurModics Pharmaceuticals that make use of patents to which the Plaintiffs invented or contributed. A trial has not yet been scheduled. Pursuant to the Stock Purchase Agreement, the Company has certain rights of indemnification against losses (including without limitation, damages, expenses and costs) incurred as a result of the litigation. The Company’s consolidated financial statements do not include any expenses or liabilities related to the above litigation as the probability of the outcome is currently not determinable and any potential loss is not estimable. The Company believes that it has meritorious defenses to the Plaintiff’s claims and will vigorously defend and prosecute this matter.

InnoRx, Inc. In January 2005, the Company entered into a merger agreement whereby SurModics acquired all of the assets of InnoRx, Inc. (“InnoRx”), an early stage company developing drug delivery devices and therapies for the ophthalmology market. SurModics will be required to issue up to approximately 480,059 additional shares of its common stock to the stockholders of InnoRx upon the successful completion of the remaining development and commercial milestones involving InnoRx technology acquired in the transaction.

SurModics IVD. In August 2007, the Company acquired 100% of the capital stock of SurModics IVD, a provider of substrates to the in vitro diagnostics industry. The sellers of SurModics IVD are still eligible to receive up to $3.0 million in additional consideration based on specific revenue targets through calendar 2011. Potential milestones of $0.5 million were not earned and lapsed in fiscal 2011.

SurModics Pharmaceuticals. In July 2007, the Company acquired 100% of the capital stock of SurModics Pharmaceuticals, a drug delivery company that provides proprietary polymer-based technologies to companies developing pharmaceutical products. The sellers of SurModics Pharmaceuticals are still eligible to receive up to $2.9 million in additional consideration based on successful achievement of specific milestones through calendar 2011. Potential milestones of $7.7 million were not earned and lapsed in fiscal 2011. The additional contingent consideration obligation was retained by the Company when it sold substantially all of the SurModics Pharmaceuticals assets to Evonik on November 17, 2011.

Alabama Jobs Commitment. In April 2008, the Company purchased a 286,000 square foot office and warehouse facility to support cGMP needs of customers and the anticipated growth of the SurModics Pharmaceuticals business. At the same time, SurModics Pharmaceuticals entered into an agreement with various governmental authorities to obtain financial incentives associated with creation of jobs in Alabama. Some of the governmental agencies have recapture rights in connection with the financial incentives if a specific number of full-time employees are not hired by June 2012, with an extension to June 2013 if circumstances or events occur that are beyond the control of SurModics Pharmaceuticals or could not have been reasonably anticipated by SurModics Pharmaceuticals. As of September 30, 2011, SurModics Pharmaceuticals has received $1.7 million in connection with the agreement, and the Company has recorded the payments in other current liabilities because the Company has not met the criteria to recognize the amounts received as income as of September 30, 2011. This liability was retained by the Company and did not transfer to Evonik when the Company sold substantially all of the SurModics Pharmaceuticals assets on November 17, 2011.

Operating Leases. The Company leases certain facilities under noncancelable operating lease agreements. Rent expense for the years ended September 30, 2011, 2010 and 2009 was $0.2 million, $0.3 million, and $1.0 million, respectively. Annual commitments pursuant to operating lease agreements are as follows (in thousands):


Year Ended September 30,
2012	$	58
2013		61
2014		62
2015		64
2016		16

Total minimum lease payments	$	261

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-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 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-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 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
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-Name Accounting Standards Codification
-Topic 825
-SubTopic 20
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-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

+ Details

Defined Contribution Plans

12 Months Ended

Sep. 30, 2011

Defined Contribution Plans [Abstract]

Defined Contribution Plans

10. Defined Contribution Plans

The Company has a 401(k) retirement and savings plan for the benefit of qualifying employees. The Company matches 50% of employee contributions on the first 6% of eligible compensation. Effective April 1, 2009, the Company changed its matching contribution to a discretionary approach and the Company ceased matching contributions. Effective April 1, 2010, the Company re-instated its matching contribution at the previous level. Company contributions totaling $0.4 million, $0.2 million, and $0.2 million have been expensed for the years ended September 30, 2011, 2010 and 2009, respectively.

- Definition

The entire disclosure for pension and other postretirement benefits.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
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-Paragraph 5
-Subparagraph a
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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Reference 11: http://www.xbrl.org/2003/role/presentationRef
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Operating Segments

12 Months Ended

Sep. 30, 2011

Operating Segments [Abstract]

Operating Segments

11. Operating Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. In the first quarter of fiscal 2011, the Company announced it was changing its operational structure to renew focus on business units and the Company is now organized into three segments, as follows: (1) the Medical Device unit, which is comprised of surface modification coating technologies to improve access, deliverability, and predictable deployment of medical devices, as well as drug delivery coating technologies to provide site-specific drug delivery from the surface of a medical device. End markets include coronary, peripheral, and neuro-vascular, and urology, among others; (2) the Pharmaceuticals unit, which incorporates a broad range of drug delivery technologies for injectable therapeutics, including microparticles, nanoparticles, and implants addressing a range of clinical applications including ophthalmology, oncology, dermatology and neurology, among others. Based in Birmingham, Alabama, the Pharmaceuticals business includes the Company’s cGMP manufacturing facility; and (3) the In Vitro Diagnostics unit, which consists of component products and technologies for diagnostic test kits and biomedical research applications. Products include microarray slide technologies, protein stabilization reagents, substrates, and antigens.

The table below presents revenue, operating (loss) income and depreciation and amortization from the segments, for the years ended September 30, as follows (in thousands):


	2011			2010			2009
Revenue:
Medical Device	$	39,576		$	43,211		$	86,546
Pharmaceuticals		15,055			15,493			18,511
In Vitro Diagnostics		13,150			11,194			16,477

Total revenue	$	67,781		$	69,898		$	121,534


	2011			2010			2009
Operating (loss) income:
Medical Device	$	19,847		$	19,524		$	62,472
Pharmaceuticals		(42,698	)		(26,479	)		(5,248	)
In Vitro Diagnostics		4,275			3,304			8,081
Corporate		(9,118	)		(10,402	)		(7,804	)

Total operating (loss) income	$	(27,694	)	$	(14,053	)	$	57,501


	2011			2010			2009
Depreciation and amortization:
Medical Device	$	1,604		$	2,136		$	2,077
Pharmaceuticals		4,035			4,241			2,030
In Vitro Diagnostics		799			828			1,248
Corporate		707			613			557

Total depreciation and amortization	$	7,145		$	7,818		$	5,912

Segment results above for fiscal 2011 include asset impairment charges of $28.1 million and a goodwill impairment charge of $5.7 million in the Pharmaceuticals segment and restructuring charges of $2.2 million in Corporate.

Segment results above for fiscal 2010 include asset impairment charges of $1.9 million and a goodwill impairment charge of $13.8 million in the Pharmaceuticals segment and restructuring charges of $1.3 million and asset impairment charges of $3.0 million in Corporate.

Segment results above for fiscal 2009 include revenue of $45.0 million in the Medical Device segment associated with the terminated Merck collaborative research and license agreement, revenue of $4.9 million in the In Vitro Diagnostics segment associated with the expired Abbott Laboratories (“Abbott”) diagnostic format patent license agreement, purchased in-process research and development charges of $3.2 million in the Pharmaceuticals segment and restructuring charges of $1.8 million in Corporate.

Corporate includes expenses for administrative corporate functions, such as executive, corporate accounting, legal, human resources and Board related, that have not been fully allocated to segments. Corporate also includes special charges, such as restructuring costs, which are not specific to a segment.

Asset information by segment is not presented in the table above because the Company does not provide its chief operating decision maker assets by segment, as the data is not readily available.

Major Customers

Revenue from customers that equaled or exceeded 10% of total revenue was as follows for the years ended September 30:


	2011			2010			2009
Medtronic		15	%		14	%		*	*
Johnson & Johnson		13	%		17	%		11	%
Merck & Company		*	*		*	*		37	%

**	- less than 10%

The revenue from the customers listed is derived from all three primary sources: licensing, product sales, and research and development.

Geographic Revenue

Geographic revenue was as follows for the years ended September 30:


	2011			2010			2009
Domestic		72	%		78	%		84	%
Foreign		28	%		22	%		16	%

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 131
-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 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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+ Details

Quarterly Financial Data (Unaudited)

12 Months Ended

Sep. 30, 2011

Quarterly Financial Data (Unaudited) [Abstract]

Quarterly Financial Data (Unaudited)

12. Quarterly Financial Data (Unaudited)

The following is a summary of the unaudited quarterly results for the years ended September 30, 2011 and 2010 (in thousands, except net (loss) income per share).


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Fiscal 2011
Revenue	$	15,168		$	17,494		$	17,967		$	17,152
(Loss) income from operations(2)		(5,620	)		2,042			3,446			(27,562	)
Net (loss) income(2)		(6,171	)		2,488			3,842			(18,665	)
Net (loss) income per share(1)(2):
Basic		(0.36	)		0.14			0.22			(1.07	)
Diluted		(0.36	)		0.14			0.22			(1.07	)
Fiscal 2010
Revenue	$	17,381		$	18,360		$	18,608		$	15,549
Income (loss) from operations		2,768			(952	)		2,220			(18,089	)
Net income (loss)		1,917			(427	)		(916	)		(21,663	)
Net income (loss) per share(1):
Basic		0.11			(0.02	)		(0.05	)		(1.25	)
Diluted		0.11			(0.02	)		(0.05	)		(1.25	)

(1)	The sum of the quarterly net income (loss) per share may not equal the annual net income (loss) per share because of changes in the weighted average number of shares outstanding.

(2)

As described in more detail in Note 1, in the fourth quarter of fiscal 2011 the Company restated its consolidated financial statements and increased its pre-tax asset impairment charges by $10.2 million to $28.1 million associated with the write-down of the long-lived assets of the SurModics Pharmaceuticals segment. The results for the fourth quarter as previously reported were (in thousands, except loss per share): loss from operations of $17,386; net loss of $12,937 and basic and diluted net loss per share of $0.74.

In the first quarter of fiscal 2011, the Company recorded a $5.7 million goodwill impairment charge associated with the Company’s SurModics Pharmaceuticals reporting unit and a restructuring charge of $1.2 million in connection with the reorganization announced in October 2010.

In the second quarter of fiscal 2010, the Company recorded a restructuring charge of $1.3 million, associated with a functional reorganization and an asset impairment charge of $2.1 million, associated with consolidation of the Company’s multiple facilities in Birmingham, Alabama.

In the third quarter of fiscal 2010, the Company recorded a $2.6 million impairment loss on its investment in two private medical technology companies and adjusted the asset impairment charge associated with the Birmingham, Alabama facilities by $0.2 million. The Company also recognized a $0.4 million asset impairment charge associated with prototypes and other equipment related to a development project for which no ongoing business was expected in the foreseeable future in light of market conditions.

In the fourth quarter of fiscal 2010, the Company recorded a $0.4 million inventory impairment charge, a $1.3 million non-cash asset impairment charge associated with long-lived assets, a $1.3 million asset impairment loss associated with certain fixed asset costs in Minnesota, a $13.8 million goodwill impairment charge associated with the Company’s SurModics Pharmaceuticals reporting unit, and a $5.3 million impairment loss on its investment in Nexeon MedSystems.

- Definition

The entire disclosure for the quarterly financial data in the annual financial statements. The disclosure may include a tabular presentation of financial information for each fiscal quarter for the current and previous year, including revenues, gross profit, income or loss before extraordinary items and earnings per share data. It also includes an indication if the information in the note is unaudited, comments on the aggregate effect of year-end adjustments, and an explanation of matters or transactions that affect comparability or are pertinent to an understanding of the information furnished.

+ References + Details