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SEC Filings

10-Q
HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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2012. Determination of fair value requires significant management judgment or estimation. The royalty payment obligations were valued using a discounted cash flow model, the future minimum royalty payment amounts and discount rates commensurate with our market risk and the terms of the obligations.

 

    Lease exit costs – In the first quarter of 2014 we ceased the use of CircuLite’s former headquarters in Teaneck, New Jersey, which was subject to an operating lease that runs through September 2020, and we recorded a liability equal to the estimated fair value of the remaining lease payments as of the cease-use date. The fair value was estimated based upon the discounted present value of the remaining lease payments, considering future estimated sublease income, estimated broker fees and required tenant improvements. This estimated fair value requires management judgment. The fair value of this liability will be remeasured at estimated fair value at each reporting period. Actual amounts paid may differ from the obligation recorded.

The following table summarizes the change in fair value, as determined by Level 3 inputs, of the contingent consideration for the nine months ended September 30, 2015:

 

     Contingent
Consideration
 
     (in thousands)  

Beginning balance

   $ 43,740   

Payments

     —      

Change in fair value

     6,700   
  

 

 

 

Ending balance

   $ 50,440   
  

 

 

 

The change in the fair value of the contingent consideration in the nine months ended September 30, 2015 was due to accretion of the liability due to the effect of the passage of time on the fair value measurement. Adjustments associated with the change in fair value of contingent consideration are presented on a separate line item in our condensed consolidated statements of operations. Potential valuation adjustments will be made in future accounting periods as additional information becomes available, including, among other items, progress toward developing the SYNERGY System, as well as revenue and milestone targets as compared to our current projections, with the impact of these adjustments being recorded in our condensed consolidated statements of operations. During the fourth quarter of 2015 we will evaluate internal timelines and development plans for the SYNERGY System. Our evaluation will take into consideration, among other things, progress with respect to underlying MVAD pump technology and resources dedicated to SYNERGY System development. This evaluation may have an impact on overall development timelines and/or cash flows of the SYNERGY System, the effect of which may result in an adjustment to estimated fair value.

The following table summarizes the change in fair value, as determined by Level 3 inputs, of the royalties for the nine months ended September 30, 2015:

 

     Royalties  
     (in thousands)  

Beginning balance

   $ 962   

Payments

     (110

Change in fair value

     44   
  

 

 

 

Ending balance

   $ 896   
  

 

 

 

The expense associated with the change in fair value of the royalty payment obligations is included in research and development expenses in our condensed consolidated statements of operations.

 

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