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SEC Filings

10-Q
HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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Table of Contents

The following table summarizes the change in our warranty liability for the nine months ended September 30, 2015 and 2014:

 

     2015      2014  
     (in thousands)  

Beginning balance

   $ 4,685       $ 2,498   

Accrual for warranty expense

     3,267         3,097   

Warranty costs incurred during the period

     (2,053      (1,474
  

 

 

    

 

 

 

Ending balance

   $ 5,899       $ 4,121   
  

 

 

    

 

 

 

The accrual for warranty expense in the nine months ended September 30, 2014 reflected an anticipated increase in battery returns as a result of a field safety corrective action in April 2014, following an observed increase in complaints related to earlier-than-expected battery depletion and routine battery handling. The Company provided information to assist patients and clinicians to monitor battery performance, recognize abnormal behaviors and reinforce proper power management of the HVAD System.

Accrued Product Recall Costs

The costs to repair or replace products associated with product recalls and voluntary service campaigns are recorded when they are determined to be probable and reasonably estimable as a cost of revenue. The following table summarizes the change in product recall liability for the nine months ended September 30, 2015 and 2014:

 

     2015      2014  
     (in thousands)  

Beginning balance

   $ 1,888       $ —     

Accrual for recall costs

     8,895         3,609   

Recall costs incurred during the period

     (1,899      (1,012
  

 

 

    

 

 

 

Ending balance

   $ 8,884       $ 2,597   
  

 

 

    

 

 

 

During the three months ended June 30, 2014, we established a $3.0 million reserve in connection with our voluntary recall of certain older batteries. Subsequently, through March 31, 2015 we increased our recall estimates by approximately $0.7 million based upon our exchange experience. The recall was implemented to mitigate the potential risks associated with premature battery depletion following our April 2014 field action, which provided information to assist patients and clinicians with monitoring battery performance, recognizing abnormal behaviors and reinforcing proper power management of the HVAD System. During the three months ended September 30, 2015 we established a reserve of $8.2 million related to our ongoing Warning Letter remediation efforts and quality system enhancements. These corrective actions include the planned replacement of certain older batteries to further mitigate residual battery reliability concerns.

In December 2014, we established a $1.3 million reserve in connection with our voluntary recall of certain older controllers which did not incorporate later design changes implemented to mitigate susceptibility to electrostatic discharge. We increased the total estimated cost of the field action by approximately $0.4 million during the three months ended March 31, 2015 based upon our exchange experience. We anticipate completing this recall by the end of 2015. The reserve for this recall was $0.4 million as of September 30, 2015.

During the three months ended September 30, 2015, we established a $0.3 million reserve in connection with our voluntary field safety corrective action of certain older AC Adapters. The recall was also part of our ongoing Warning Letter remediation efforts and quality system enhancements and was implemented to mitigate potential risks for AC Adapters designed for use outside the United States which have a higher risk of failing in case of a power surge compared to other HeartWare AC Adapters. This field action will provide clinicians instructions on how to identify and replace the affected AC Adapters.

 

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