Hemosphere Acquisition

6 Months Ended

Jun. 30, 2014

Hemosphere Acquisition [Abstract]

Hemosphere Acquisition

5.  Hemosphere Acquisition  

On May 16, 2012 CryoLife acquired Hemosphere, which the Company now operates as a wholly owned subsidiary.  Hemosphere is the developer and marketer of the HeRO Graft, a proprietary graft-based solution for ESRD hemodialysis patients with limited access options and central venous obstruction. 

As of the Hemosphere acquisition date, CryoLife recorded a contingent consideration liability of $1.8 million in long-term liabilities on its Summary Consolidated Balance Sheet, representing the estimated fair value of the contingent consideration expected to be paid to the former shareholders of Hemosphere upon the achievement of certain revenue-based milestones.  The acquisition agreement provides for a maximum of $4.5 million in future consideration payments through December 2015 based on specified sales targets.

The fair value of the contingent consideration liability was based on unobservable inputs, including management’s estimates and assumptions about future revenues, and is, therefore, classified as Level 3 within the fair value hierarchy presented in Note 2.  The Company will remeasure this liability at each reporting date and will record changes in the fair value of the contingent consideration liability in other (income) expense, net on the Company’s Summary Consolidated Statement of Operations and Comprehensive Income.  Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing and amount of Company revenue estimates. 

The Company recorded gains of $198,000 and $296,000 in the three and six months ended June 30, 2014, respectively, and losses of $39,000 and $78,000 in the three and six months endedJune 30, 2013, respectively, on the remeasurement of the contingent consideration liability.  The gains and losses in the current and prior year periods are due to the effect of the passage of time on the fair value measurements and changes in the Company’s estimates.  The balance of the contingent consideration liability was $1.6 million as of June 30, 2014 and $1.9 million as of December 31, 2013.