ABMD » Topics » 14. Income Taxes

These excerpts taken from the ABMD 10-K filed Jun 8, 2009.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. At March 31, 2009, we had federal and state net operating loss carryforwards, or NOLs, of approximately $145.1 million and $97.1

 

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million, respectively, which begin to expire in fiscal 2010. Additionally, at March 31, 2009, we had federal and state research and development credit carryforwards of approximately $8.1 million and $4.2 million, respectively, which begin to expire in fiscal 2010. We acquired Impella, a German-based company, in May 2005. The utilization of pre-acquisition NOLs of Impella in future periods is also subject to certain statutory approvals and business requirements.

Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a valuation allowance of $109.0 million at March 31, 2009 has been established to offset our net deferred tax assets and liabilities. In the event that we determine in the future that we will be able to realize all or a portion of our net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made. Additionally, the future utilization of our NOL and research and development credit carry forwards to offset future taxable income may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to ownership changes that have occurred previously or that could occur in the future. Ownership changes, as defined in Section 382 of the Internal Revenue Code, can limit the amount of NOL carry forwards and research and development credit carry forwards that a company can use each year to offset future taxable income and taxes payable. We believe that all of our federal and state NOL’s will be available for carryforward to future tax periods, subject to the statutory maximum carryforward limitation of any annual NOL. Any future potential limitation to all or a portion of the NOL or research and development credit carry forwards, before they can be utilized, would reduce our gross deferred tax assets. We will monitor subsequent ownership changes, which could impose limitations in the future.

Income Taxes

FACE="Times New Roman" SIZE="1">As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual
current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. At March 31, 2009, we had federal
and state net operating loss carryforwards, or NOLs, of approximately $145.1 million and $97.1

 


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million, respectively, which begin to expire in fiscal 2010. Additionally, at March 31, 2009, we had federal and state research and development credit
carryforwards of approximately $8.1 million and $4.2 million, respectively, which begin to expire in fiscal 2010. We acquired Impella, a German-based company, in May 2005. The utilization of pre-acquisition NOLs of Impella in future periods is also
subject to certain statutory approvals and business requirements.

Due to uncertainties surrounding our ability to generate future taxable
income to realize these assets, a valuation allowance of $109.0 million at March 31, 2009 has been established to offset our net deferred tax assets and liabilities. In the event that we determine in the future that we will be able to realize
all or a portion of our net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made. Additionally, the future utilization of our NOL and research and development
credit carry forwards to offset future taxable income may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to ownership changes that have occurred previously or that could occur in the future.
Ownership changes, as defined in Section 382 of the Internal Revenue Code, can limit the amount of NOL carry forwards and research and development credit carry forwards that a company can use each year to offset future taxable income and taxes
payable. We believe that all of our federal and state NOL’s will be available for carryforward to future tax periods, subject to the statutory maximum carryforward limitation of any annual NOL. Any future potential limitation to all or a
portion of the NOL or research and development credit carry forwards, before they can be utilized, would reduce our gross deferred tax assets. We will monitor subsequent ownership changes, which could impose limitations in the future.

STYLE="margin-top:18px;margin-bottom:0px">Fair Value Measurements

Effective April 1,
2008, we adopted the provisions under SFAS No. 157, Fair Value Measurements, as required for the valuation of our financial assets and liabilities. However, the Financial Accounting Standards Board, or FASB, deferred the effective date
of SFAS 157 for one year as it relates to fair value measurement requirements for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis. SFAS No. 157 establishes a
three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by
Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where
there is little, if any, market activity for the asset or liability. The value of our Level 1 instruments was $52.1 million and the value of our Level 3 investments was $7.0 million as of March 31, 2009.

STYLE="margin-top:18px;margin-bottom:0px">Financial Instruments

We entered into a convertible
note purchase agreement with World Heart Corporation (“WorldHeart”) in December 2007, a developer of implantable mechanical circulatory support systems for chronic heart failure patients. Under the agreement, we loaned $5.0 million to
WorldHeart, with the note and accrued interest, at 8% per annum, convertible at our option into common stock of WorldHeart. We advanced $1.0 million of the loan in December 2007 with the remaining $4.0 million advanced in January 2008. The
conversion feature within the note was an embedded derivative instrument under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and accordingly, was separately valued within the carrying value of the note
receivable. We also received a warrant to purchase up to 3,400,000 shares of WorldHeart common stock.

The grant date fair values of the
assets associated with the note receivable and the warrant, in excess of cash paid were deemed to be deferred income, as analogized to SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases
. Similar to other loan fees, the deferred income related to grant date fair value of the note receivable and the warrant would be recognized over the life of the note receivable, if deemed to be realizable as a
yield adjustment.

We initially recorded the derivative financial instruments on our consolidated balance sheet at fair value. Changes in
the fair value of these derivative financial instruments were recorded as “Change in fair value of WorldHeart note receivable and warrant” in the consolidated statements of operations. The measurement of fair value was based on valuation
methodologies considered appropriate by our management. The estimated fair value of the embedded derivative and warrant was determined using the Black-Scholes method. Because of inherent uncertainty of valuations of derivative instruments, estimated
fair values may differ from the value that would have been used had a ready market for the investment existed and these differences could have a material impact in the consolidated statements of operations.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">In May 2008, WorldHeart filed a Form 8-K disclosing that it had limited cash available to continue operations and that if it was unable to secure
additional funding, it would be forced to take extraordinary business measures which could include filing for bankruptcy, ceasing operations and liquidating assets. Due to these events, we recorded an impairment charge of $5.0 million during fiscal
2008 relating to our note receivable to WorldHeart and our associated derivative instruments (embedded conversion feature and warrant).

In
July 2008, WorldHeart completed the transactions contemplated by the recapitalization agreement dated June 20, 2008, as amended on July 31, 2008, we entered into with WorldHeart and the other parties named therein. As a result of the
transaction, we received 86 million

 


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common shares of WorldHeart, which represented approximately 21.6% of WorldHeart’s issued and outstanding common shares following the transaction. The
shares were received as a result of our conversion of the full amount of principal and interest owed on the $5.0 million convertible note issued in December 2007, our release of the security interest in all of the assets of WorldHeart that secured
the note, termination of the warrant we held to purchase 3.4 million common shares of WorldHeart, forgiveness of other amounts owed to us by WorldHeart, the amendment of our rights with respect to the distribution of WorldHeart products, and
the appointment of a director or observer to WorldHeart’s board of directors. In October, 2008, WorldHeart completed a 30-to-1 reverse stock split, as a result of which we held 2,866,666 common shares of WorldHeart. In December 2008, we sold
135,000 shares of WorldHeart for net proceeds of $0.3 million, which was, as a result of our basis having been reduced to zero, recorded as a gain on the sale of WorldHeart common stock during the three months ended December 31, 2008. As of
March 31, 2009, we held 2,731,666 common shares of WorldHeart, or approximately 20.6% of WorldHeart’s issued and outstanding shares. We are accounting for this investment using the equity method of accounting. The carrying value of this
investment was zero at March 31, 2009.

This excerpt taken from the ABMD 10-Q filed Feb 9, 2009.

Note 12. Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the Company’s net deferred tax assets and liabilities.

As of December 31, 2008, the Company has accumulated a net deferred tax liability in the amount of $1.9 million which is the result of a difference in accounting for the Company’s goodwill which is amortized over 15 years for tax purposes, but not amortized for book purposes. The net deferred tax liability cannot be offset against the Company’s deferred tax assets since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period. The Company recorded a provision for income taxes of $0.2 million in each of the three months ended December 31, 2008 and 2007. For the nine months ended December 31, 2008 and 2007, the Company recorded a provision for income taxes of $0.6 million and $0.5 million, respectively.

On April 1, 2007, the Company adopted Financial Interpretation FIN No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition and defines the criteria that must be met for the benefits of a tax position to be recognized. As a result of its adoption of FIN No. 48, the Company recorded the cumulative effect of the change in accounting principle of $0.3 million as a decrease to opening retained earnings and an increase to other long-term liabilities as of April 1, 2007. This adjustment relates to state nexus for failure to file tax returns in various states for the years ended March 31, 2003, 2004, and 2005. The Company initiated a voluntary disclosure plan with many of these states and has filed these tax returns or reached agreements with many of the states to settle the tax liability. The Company has elected to recognize interest and/or penalties related to income tax matters in income tax expense in its consolidated statement of operations. A reconciliation of the beginning and ending balance of unrecognized tax benefits, excluding accrued interest recorded at December 31, 2008 (in thousands) is as follows:

 

Balance at March 31, 2008

   $ 168  

Reductions in tax positions for payments and other adjustments

     (168 )
        

Balance at December 31, 2008

   $ —    
        

On a quarterly basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the unrecognized tax positions will increase or decrease during the next 12 months; however, it is not expected that the change will have a significant effect on the Company’s results of operations or financial position.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and foreign jurisdictions. The Company has accumulated significant losses since its inception in 1981. All tax years remain subject to examination by major tax jurisdictions, including the federal government and the Commonwealth of Massachusetts. However, since the Company has net operating loss and tax credit carry forwards which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if the carry forwards are utilized.

 

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This excerpt taken from the ABMD 10-Q filed Nov 10, 2008.

Note 12. Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the Company’s net deferred tax assets and liabilities.

As of September 30, 2008, the Company has accumulated a net deferred tax liability in the amount of $4.9 million which is the result of a difference in accounting for the Company’s goodwill which is amortized over 15 years for tax purposes, but not amortized for book purposes. The net deferred tax liability cannot be offset against the Company’s deferred tax assets since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period. For the three months ended September 30, 2008 and 2007, the Company recorded a provision for income taxes of $0.2 million and $0.1 million, respectively. For the six months ended September 30, 2008 and 2007, the Company recorded a provision for income taxes of $0.4 million and $0.3 million, respectively.

On April 1, 2007, the Company adopted Financial Interpretation FIN No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition and defines the criteria that must be met for the benefits of a tax position to be recognized. As a result of its adoption of FIN No. 48, the Company recorded the cumulative effect of the change in accounting principle of $0.3 million as a decrease to opening retained earnings and an increase to other long-term liabilities as of April 1, 2007. This adjustment relates to state nexus for failure to file tax returns in various states for the years ended March 31, 2003, 2004, and 2005. The Company initiated a voluntary disclosure plan with many of these states and has filed these tax returns or reached agreements with many of the states to settle the tax liability. The Company has elected to recognize interest and/or penalties related to income tax matters in income tax expense in its consolidated statement of operations. A reconciliation of the beginning and ending balance of unrecognized tax benefits, excluding accrued interest recorded at September 30, 2008 (in thousands) is as follows:

 

Balance at March 31, 2008

   $ 168  

Reductions in tax positions for payments and other adjustments

     (168 )
        

Balance at September 30, 2008

   $ —    
        

On a quarterly basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the unrecognized tax positions will increase or decrease during the next 12 months; however, it is not expected that the change will have a significant effect on the Company’s results of operations or financial position.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and foreign jurisdictions. The Company has accumulated significant losses since its inception in 1981. All tax years remain subject to examination by major tax jurisdictions, including the federal government and the Commonwealth of Massachusetts. However, since the Company has net operating loss and tax credit carry forwards which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if the carry forwards are utilized.

 

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ABIOMED, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—Continued

(In thousands, except share data)

 

This excerpt taken from the ABMD 10-Q filed Aug 11, 2008.

Note 11. Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the Company’s net deferred tax assets and liabilities.

As of June 30, 2008, the Company has accumulated a net deferred tax liability in the amount of $4.8 million, of which $1.5 million is the result of a difference in accounting for the Company’s goodwill, which is amortized over 15 years for tax purposes but not amortized for book purposes. The net deferred tax liability cannot be offset against the Company’s deferred tax assets since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period. For the three months ended June 30, 2008 and 2007, the Company has recorded a provision for income taxes of $0.1 million and $0.1 million, respectively. The remaining $3.3 million of the deferred tax liability is due to an unrealized gain from fluctuations in foreign currency with respect to the Company’s European operations.

On April 1, 2007, the Company adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition and defines the criteria that must be met for the benefits of a tax position to be recognized. As a result of its adoption of FIN No. 48, the Company has recorded the cumulative effect of the change in accounting principle of $0.3 million as a decrease to opening retained earnings and an increase to other long-term liabilities as of April 1, 2007. This adjustment relates to state nexus for failure to file tax returns in various states for the years ended March 31, 2003, 2004, and 2005. The Company has initiated a voluntary disclosure plan with many of these states to file these tax returns. The Company has elected to recognize interest and/or penalties related to income tax matters in income tax expense in its consolidated statement of operations. A reconciliation of the beginning and ending balance of unrecognized tax benefits, excluding accrued interest recorded at June 30, 2008 (in thousands) is as follows:

 

Balance at March 31, 2008

   $ 224  

Reductions in tax positions for payments and other adjustments

     (224 )
        

Balance at June 30, 2008

   $ —    
        

On a quarterly basis, the Company accrues for the effects of open uncertain tax positions and the related potential penalties and interest. The Company has recorded a liability for unrecognized tax benefits in current liabilities of approximately $50,000 for accrued interest at June 30, 2008. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the unrecognized tax positions will increase or decrease during the next 12 months; however, it is not expected that the change will have a significant effect on the Company’s results of operations or financial position.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and foreign jurisdictions. The Company has accumulated significant losses since its inception in 1981. All tax years remain subject to examination by major tax jurisdictions, including the federal government and the Commonwealth of Massachusetts. However, since the Company has net operating loss and tax credit carry forwards which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if the carry forwards are utilized.

These excerpts taken from the ABMD 10-K filed Jun 16, 2008.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. At March 31, 2008, we had federal and state net operating loss carryforwards, or NOLs, of approximately $90.8 million and $42.8 million, respectively, which begin to expire in fiscal 2009. Additionally, at March 31, 2008, we had federal and state research and development credit carryforwards of approximately $6.6 million and $3.2 million, respectively, which begin to expire in fiscal 2009. We acquired Impella, a German-based company, in May 2005. Impella had pre-acquisition net operating losses of approximately $22.9 million at the time of acquisition (which is denominated in Euros and is subject to foreign exchange remeasurement at each balance sheet date presented), and has since incurred net operating losses in each fiscal year since the acquisition. During fiscal 2008, we determined that approximately $1.5 million of pre-acquisition net operating losses could not be utilized. The utilization of pre-acquisition NOLs of Impella in future periods is subject to certain statutory approvals and business requirements.

Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a full valuation allowance of $96.2 million has been established to offset our net deferred tax assets and liabilities. In the event that we determine in the future that we will be able to realize all or a portion of our net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made. Additionally, the future utilization of our NOL and research and development credit carry forwards to offset future taxable income may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to ownership changes that have occurred previously or that could occur in the future. Ownership changes, as defined in Section 382 of the Internal Revenue Code, can limit the amount of NOL carry forwards and research and development credit carry forwards that a company can use each year to offset future taxable income and taxes payable. We completed a Section 382 study and analysis in fiscal 2008 to determine whether changes in the composition of its stockholders, including our acquisition of Impella or our recent public offering, resulted in an ownership change for purposes of Section 382. We believe that all of our federal and state NOL’s will be available for carryforward to future tax periods, subject to the statutory maximum carryforward limitation of any annual NOL. Any future potential limitation to all or a portion of the NOL or research and development credit carry forwards, before they can be utilized, would reduce our gross deferred tax assets. We will monitor subsequent ownership changes, which could impose limitations in the future.

In July 2006, the FASB issued FASB Interpretation No. 48 or FIN No. 48, Accounting for Uncertainty in Income Taxes, which we adopted effective April 1, 2007. FIN No. 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

Income Taxes

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax
assets and liabilities. At March 31, 2008, we had federal and state net operating loss carryforwards, or NOLs, of approximately $90.8 million and $42.8 million, respectively, which begin to expire in fiscal 2009. Additionally, at March 31,
2008, we had federal and state research and development credit carryforwards of approximately $6.6 million and $3.2 million, respectively, which begin to expire in fiscal 2009. We acquired Impella, a German-based company, in May 2005. Impella had
pre-acquisition net operating losses of approximately $22.9 million at the time of acquisition (which is denominated in Euros and is subject to foreign exchange remeasurement at each balance sheet date presented), and has since incurred net
operating losses in each fiscal year since the acquisition. During fiscal 2008, we determined that approximately $1.5 million of pre-acquisition net operating losses could not be utilized. The utilization of pre-acquisition NOLs of Impella in future
periods is subject to certain statutory approvals and business requirements.

Due to uncertainties surrounding our ability to generate
future taxable income to realize these assets, a full valuation allowance of $96.2 million has been established to offset our net deferred tax assets and liabilities. In the event that we determine in the future that we will be able to realize all
or a portion of our net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made. Additionally, the future utilization of our NOL and research and development
credit carry forwards to offset future taxable income may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to ownership changes that have occurred previously or that could occur in the future.
Ownership changes, as defined in Section 382 of the Internal Revenue Code, can limit the amount of NOL carry forwards and research and development credit carry forwards that a company can use each year to offset future taxable income and taxes
payable. We completed a Section 382 study and analysis in fiscal 2008 to determine whether changes in the composition of its stockholders, including our acquisition of Impella or our recent public offering, resulted in an ownership change for
purposes of Section 382. We believe that all of our federal and state NOL’s will be available for carryforward to future tax periods, subject to the statutory maximum carryforward limitation of any annual NOL. Any future potential
limitation to all or a portion of the NOL or research and development credit carry forwards, before they can be utilized, would reduce our gross deferred tax assets. We will monitor subsequent ownership changes, which could impose limitations in the
future.

In July 2006, the FASB issued FASB Interpretation No. 48 or FIN No. 48, Accounting for Uncertainty in Income
Taxes
, which we adopted effective April 1, 2007. FIN No. 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, tax
benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

FACE="Times New Roman" SIZE="1">Financial Instruments

We entered into a convertible note purchase agreement with World Heart
Corporation, or WorldHeart, in December 2007. Under the agreement, we loaned $5.0 million to WorldHeart, with the note and accrued interest, at 8% per annum, convertible at our option into common stock of WorldHeart. We advanced $1.0 million of
the loan in December 2007 with the remaining $4.0 million advanced in January

 


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2008. The conversion feature within the note is an embedded derivative instrument under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities
and, accordingly, is separately valued within the carrying value of the note receivable. We also received a warrant to purchase up to 3,400,000 shares of WorldHeart common stock.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">The grant date fair values of the assets associated with the note receivable and the warrant, in excess of cash paid were deemed to be deferred income,
as prescribed by SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. Similar to other loan fees, the deferred income related to grant date fair value
of the note receivable and the warrant will be recognized over the life of the note receivable, if deemed to be realizable as a yield adjustment.

SIZE="1">We record these derivative financial instruments on our consolidated balance sheet at fair value. Changes in the fair value of derivative financial instruments are recorded as “change in fair value of WorldHeart note receivable and
warrant” in the consolidated statements of operations. The measurement of fair value is based on valuation methodologies considered appropriate by our management. The estimated fair value of the embedded derivative and warrant has been
determined using the Black-Scholes method. Because of inherent uncertainty of valuations of derivative instruments, estimated fair values may differ from the value that would have been used had a ready market for the investment existed, and these
differences could have a material impact in the consolidated statements of operations.

We monitor our investment in the note receivable
and warrant on a quarterly basis to determine whether any impairment is required. We consider available evidence, including the duration and extent to which the market value has been less than cost, if applicable, to evaluate the extent to which the
decline is other-than-temporary. If the decline is considered other-than-temporary, the carrying value of the financial instruments will be written down to estimated realizable value.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">In May 2008, WorldHeart filed a Form 8-K disclosing that it has limited cash available to continue operations and that if it is unable to secure
additional funding, it will be forced to take extraordinary business measures which could include filing for bankruptcy, ceasing operations and liquidating assets. We have a security interest in WorldHeart’s intellectual property and other
assets under the terms of the loan agreements. However, in the event of insolvency or bankruptcy of WorldHeart, there may not be a market for these assets, in which case we may not be able to receive payment for our convertible note. Due to these
events, we recorded an impairment charge of $5.0 million during fiscal 2008 related to our note receivable from WorldHeart and its associated derivative instruments. WorldHeart may be unsuccessful in raising additional funds to finance its
operations and may become insolvent as a result. In the event of insolvency or bankruptcy of WorldHeart, there may not be a market for these assets, in which case the Company may not be able to receive payments for our convertible note.


This excerpt taken from the ABMD 10-Q filed Feb 11, 2008.

Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which became effective for us beginning in fiscal 2008. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Effective April 1, 2007, we adopted the provisions of FIN 48.

This excerpt taken from the ABMD 10-Q filed Nov 8, 2007.

Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which became effective for us beginning in fiscal 2008. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Effective April 1, 2007, we adopted the provisions of FIN 48.

For additional information regarding the adoption of FIN 48, see Note 14. For further discussion of our critical accounting estimates related to income taxes, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

This excerpt taken from the ABMD 10-Q filed Aug 9, 2007.

Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which became effective for us beginning in fiscal 2008. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Effective April 1, 2007, we adopted the provisions of FIN 48.

For additional information regarding the adoption of FIN 48, see Note 14. For further discussion of our critical accounting estimates related to income taxes, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

This excerpt taken from the ABMD 10-K filed Jun 13, 2007.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. In addition, as of March 31, 2007, we had federal and state tax net operating loss carryforwards of approximately $79.2 million and $36.9 million, respectively, that begin to expire in fiscal 2008. At March 31, 2007, we also had foreign net operating loss carryforwards of approximately $20.6 million that can be carried forward indefinitely. We have federal and state research and development credit carryforwards of approximately $6.3 million and $4.3 million, respectively, that begin to expire in fiscal 2008. We have recorded a valuation allowance of $80.1 million as an offset against these net deferred tax assets due to the uncertainty surrounding the timing of the realization of the tax benefit. In the event that we determine in the future that we will be able to realize all or a portion of our net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made. Ownership changes, as defined in Section 382 of the Internal Revenue Code, may have limited the amount of net operating loss carryforwards and research and experimentation credit carryforwards that we can use each year to offset future taxable income and taxes payable. Subsequent ownership changes could impose additional limitations. We have not done a complete analysis to determine whether changes in the composition of our stockholders, including as a result of our acquisition of Impella or our recent public offering, have resulted or will result in an ownership change for purposes of Section 382.

This excerpt taken from the ABMD 10-Q filed Feb 8, 2007.

14. Income Taxes

As a result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) and the acquisition of Impella, the Company has recorded a valuation allowance in excess of its net deferred tax assets to the extent the difference between the book and tax basis of indefinite lived intangible assets is not expected to reverse during the net operating loss carryforward period.

As of December 31, 2006, the Company has accumulated a net deferred tax liability in the amount of $0.9 million which is primarily the result of a difference in accounting for the Company’s goodwill which is amortized over 15 years for tax purposes but not amortized for book purposes, in accordance with SFAS No. 142. The net deferred tax liability cannot be offset against the Company’s deferred tax assets under U.S. generally accepted accounting principles since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period. For the three and nine months ended December 31, 2006, the Company has recorded a deferred tax provision relating to amortization of goodwill for tax purposes in the amount of $0.1 million and $0.3 million, respectively. For both the three and nine months ended December 31, 2005, the Company recorded a deferred tax provision relating to amortization of goodwill in the amount of $0.3 million.

 

15


Table of Contents
This excerpt taken from the ABMD 10-Q filed Nov 8, 2006.

14. Income Taxes

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes”. The asset and liability approach used under SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. At March 31, 2006, the Company had $68.1 million of deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences which are available to reduce income taxes in future years.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Management has determined that the Company is not likely to realize the income tax benefit of its net deferred tax assets. To the extent the Company generates income in future years, the tax provision will reflect the realization of such benefits, with the exception of benefits attributable to acquired deferred tax assets. The recognition of such benefits in future years will be allocated to reduce the excess of the purchase price over the net assets acquired and other non-current intangible assets.

As a result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) and the acquisition of Impella, the Company has recorded a valuation allowance in excess of its net deferred tax assets to the extent the difference between the book and tax basis of indefinite lived intangible assets is not expected to reverse during the net operating loss carryforward period.

As of September 30, 2006, the Company has accumulated a net deferred tax liability in the amount of $0.6 million which is the result of a difference in accounting for the Company’s goodwill which is amortized over 15 years for tax purposes but not amortized for book purposes, in accordance with SFAS No. 142. The net deferred tax liability cannot be offset against the Company’s deferred tax assets under U.S. generally accepted accounting principals since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period. For the three and six months ended September 30, 2006, the Company has recorded a deferred tax provision related to goodwill in the amount of $0.1 million and $0.2 million, respectively.

 

16


Table of Contents

ABIOMED, INC. AND SUBSIDIARIES

PART 1. FINANCIAL INFORMATION (continued)

ITEM 1: FINANCIAL STATEMENTS (continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(continued)

This excerpt taken from the ABMD 8-K filed Jul 27, 2005.

(5) INCOME TAXES

 

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). The asset and liability approach used under SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities.

 

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates.   At December 31, 2003 and 2004, respectively, the Company had tax loss carryforwards of approximately $7,106,000 and $15,504,000.  Under SFAS 109, a valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.  A valuation reserve has been established for the full amount of the deferred tax asset.

 

The components of the Company’s net deferred taxes were as follows at December 31:

 

 

 

December 31,
2003

 

December 31,
2004

 

Deferred tax assets:

 

 

 

 

 

NOL carryforwards, Impella Germany

 

$

2,827

 

$

6,167

 

Recognition of license fees

 

 

54

 

Capitalization of contribution in kind of patents

 

(299

)

(305

)

 

 

2,528

 

5,916

 

Valuation allowance

 

(2,528

)

(5,916

)

Net deferred taxes

 

$

 

$

 

 

Due to the net losses in 2003 and 2004 no income tax expenses were incurred in either year.

 

This excerpt taken from the ABMD 10-K filed Jun 17, 2005.
Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. In addition, as of March 31, 2005, the Company had federal and state tax net operating loss carryforwards of approximately $74.8 million and $34.6 million, respectively, that begin to expire in 2006. The Company also has federal and state research and development credit carryforwards of approximately $5.1 million and $3.3 million, respectively, that begin to expire in 2006. We have recorded a valuation allowance of $52.2 million as an offset against these otherwise recognizable net deferred tax assets due to the uncertainty surrounding the timing of the realization of the tax benefit. In the event that we determine in the future that the Company will be able to realize all or a portion of its net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made.

 

This excerpt taken from the ABMD 10-K filed Jun 14, 2005.
Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. In addition, as of March 31, 2005, the Company had federal and state tax net operating loss carryforwards of approximately $74.8 million and $34.6 million, respectively, that begin to expire in 2006. The Company also has federal and state research and development credit carryforwards of approximately $5.1 million and $3.3 million, respectively, that begin to expire in 2006. We have recorded a valuation allowance of $52.2 million as an offset against these otherwise recognizable net deferred tax assets due to the uncertainty surrounding the timing of the realization of the tax benefit. In the event that we determine in the future that the Company will be able to realize all or a portion of its net deferred tax benefit, an adjustment to deferred tax valuation allowance would increase net income in the period such a determination was made.

 

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