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SEC Filings

10-Q
HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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In the three months ended September 30, 2014, we recorded a $3.6 million adjustment for the decrease in the estimated fair value of the contingent consideration since June 30, 2014. The decrease in the estimated fair value of the contingent consideration was primarily due to a $6.1 million reduction due to the likelihood of not achieving the performance milestone conditions related to the re-launch of the acquired form of the SYNERGY Surgical System following its loss of CE marking in the European Union in March 2014. In addition, we have discontinued development of the SYNERGY micropump and have focused our efforts on a version of our MVAD pump for our partial-assist program. The $6.1 million reduction in fair value was partially offset by an increase of $2.5 million due to accretion of the liability due to the passage of time.

In the nine months ended September 30, 2014, we recorded a $14.2 million adjustment for the decrease in the estimated fair value of the contingent consideration. The decrease in the estimated fair value of the contingent consideration was primarily due to a $22.7 million reduction due to the likelihood of not achieving the performance milestone conditions related to the re-launch of the acquired form of the SYNERGY Surgical System as noted above. The $22.7 million reduction in fair value was partially offset by an increase of $8.5 million due to accretion of the liability due to the passage of time.

Determining the estimated fair value of the contingent consideration requires significant management judgment or estimation. The estimated fair value is calculated using the income approach, with significant inputs that include various development timelines, revenue assumptions, discount rates and applying a probability to each outcome. Material changes in any of these inputs could result in a significantly higher or lower fair value measurement. 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.

Foreign Exchange

We generate a substantial portion of our revenue and collect receivables in foreign currencies. Fluctuations in the exchange rate of the U.S. dollar against the Euro, British Pound and Australian dollar can result in foreign currency exchange gains and losses that may significantly affect our financial results. Continued fluctuation of these exchange rates could result in financial results that are not comparable from quarter to quarter.

In the three months ended September 30, 2015, our net foreign exchange loss totaled approximately $0.4 million, primarily due to a modest rebound in the U.S. dollar. This compared to a net foreign exchange loss of approximately $3.3 million in the same period of 2014. In the nine months ended September 30, 2015, our net foreign exchange loss totaled approximately $3.4 million, primarily due to a significant weakening of the Euro during the first quarter of 2015. This loss compared to net foreign exchange losses of approximately $3.1 million in the same period of 2014. In 2015 and 2014, the majority of our realized and unrealized foreign exchange gains and losses resulted from the settlement of certain balance sheet accounts, primarily accounts receivable that were denominated in foreign currencies, and the remeasurement to U.S. dollars at period end of certain balance sheet accounts, denominated in foreign currencies, primarily the Euro. We expect to continue to realize foreign exchange gains and losses for the foreseeable future as a significant portion of our sales is denominated in foreign currencies. We do not currently utilize foreign currency contracts to manage foreign exchange risks.

Interest Expense

Interest expense in 2015 and 2014 primarily consists of interest incurred on the principal amount of our convertible notes, amortization of the related discount and amortization of the portion of the deferred financing costs allocated to the debt component. The discount on the 3.5% convertible notes and the deferred financing costs are being amortized to interest expense through the December 15, 2017 maturity date of the convertible notes using the effective interest method. The discount on the 1.75% convertible notes and the deferred financing costs are being amortized to interest expense through the December 15, 2021 maturity date of the convertible notes using the effective interest method.

 

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