##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Fiscal Year Ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 001-34256
 HEARTWARE INTERNATIONAL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    26-3636023(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 
 
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on which RegisteredCommon Stock, $0.001 Par Value Per Share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
 
 þ o
 Yes o No þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated By Reference




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##### 



PART I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    17Item 1B. Unresolved Staff Comments
    
    
    35Item 2. Properties
    
    
    35Item 3. Legal Proceedings
    
    
    35Item 4. (Removed and Reserved)
    
    
    35Part II
    
    
    36Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
    
    
    36Item 6. Selected Financial Data
    
    
    38Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    40Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 8. Financial Statements and Supplementary Data
    
    
    54Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    83Item 9A. Controls and Procedures
    
    
    83Item 9B. Other Information
    
    
    85Part III
    
    
    86Item 10. Directors, Executive Officers and Corporate Governance
    
    
    86Item 11. Executive Compensation
    
    
    88Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    88Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    97Item 14. Principal Accounting Fees and Services
    
    
    97Part IV.
    
    
    98Item 15. Exhibits, Financial Statement Schedules
    
    
    98Exhibit 10.08Exhibit 10.29Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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References
  
    
    HeartWare, the Company, HeartWare Group, we, us and our refer to HeartWare
International, Inc. and its consolidated subsidiaries, HeartWare Pty. Limited, HeartWare,
Inc., HeartWare GmbH and HeartWare (UK) Limited.
 
    
    HeartWare International, Inc. refers to HeartWare International, Inc., a Delaware
corporation incorporated on July 29, 2008.
 
    
    HeartWare Pty. Limited refers to HeartWare Pty. Limited (formerly known as HeartWare
Limited), an Australian proprietary corporation originally incorporated on November 26,
2004.
 
    
    HeartWare, Inc. refers to HeartWare, Inc., a Delaware corporation incorporated on
April 3, 2003. HeartWare, Inc. was acquired by HeartWare Pty. Limited on January 24, 2005.
 
    
    HeartWare GmbH refers to HeartWare GmbH, a German corporation established on February
19, 2010.
 
    
    HeartWare (UK) Limited refers to HeartWare (UK) Limited, a limited liability
corporation established in the United Kingdom on February 19, 2010.
 Forward-Looking Statements
  
    
    our expectations with respect to regulatory submissions and approvals, such as FDA
approval of our premarket approval application for our HeartWare® Ventricular Assist System
for a bridge-to-transplant indication;
 
    
    our expectations with respect to our clinical trials, including enrollment in or
completion of our clinical trials;
 
    
    our expectations with respect to the integrity or capabilities of our intellectual
property position;
 
    
    our ability and plans to commercialize our existing products;
 
    
    our ability and plans to develop and commercialize new products and the expected
features and functionalities and possible benefits of these products; and
 
    
    our estimates regarding our capital requirements and financial performance, including
profitability.
   1




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Corporate Information
    www.heartware.com
 Currency
  Trademarks
 ® ® ® ®
  2




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##### Table of Contents



PART I
 
 Item 1.
    
    Business
 Overview
    Bridge-to-transplant
 ®
     3




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##### Table of Contents



Destination Therapy
  Other Clinical Activities
  Other Devices
  Operations
   4




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Market Opportunity
 Heart Failure
  Our Target MarketsClass III and Class IV Patients
    5




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CHF Treatment Options
   LVAD Treatment for Advanced Heart Failure
 The New England Journal of
Medicine The New England Journal of Medicine
  Bridge-to-transplant therapy 2009 Annual
Report of the OPTN and SRTR: Transplant Data 1999-2008
 Bridge-to-decision therapy
  6




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Destination therapy
 Bridge-to-recovery therapy New England Journal of Medicine
 Our Solution and Products
 Proprietary Pump Technology
   The HeartWare System
    7




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The HeartWare MVAD
    
    
    finalization of surgical implantation techniques and procedures, including
identification of necessary surgical implant tools;
 
    
    completion of pump and system designs;
 
    
    completion of confirmatory in-vivo (animal) studies;
 
    
    development and verification of system peripherals (e.g., controller, batteries,
power adapters) utilizing the HeartWare System components;
 
    
    approval of and successful completion of a clinical trial; and
 
    
    receipt of regulatory approvals for commercialization.
 Enhanced Quality of Life with Smaller Peripherals and Implantable Devices
      8




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Our Business Strategy
   Expand Market Penetration outside of the U.S. 
 Obtain regulatory approval in the United States 
  Focus on continuous product development 
  9




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Partner with leading professionals in the fields of cardiovascular surgery around the world 
 Sales and Marketing
     Intellectual Property
    
    
    use of dual stators in a blood pump;
 
    
    the combination of passive magnetic bearings and hydrodynamic thrust bearings;
 
    
    channels or wide-bladed impellers in a blood pump;
 
    
    the use of ceramic between an impeller and motor stator;
 
    
    flow estimation based on impeller speed and viscosity; and
 
    
    use of platinum alloy for blood pump impellers.
   10




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Government Regulation
 United States
  
    
    product design and development;
 
    
    product testing;
 
    
    product manufacturing;
 
    
    product safety and effectiveness;
 
    
    product labeling;
 
    
    product storage;
 
    
    record keeping;
 
    
    premarket approval;
 
    
    advertising and promotion;
 
    
    distribution;
 
    
    product sales and post-market activities;
 
    
    import and export;
 
    
    medical device (adverse event) reporting; and
 
    
    field corrective actions (e.g., recalls).
  11




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Premarket Approval
    Pervasive and Continuing FDA Regulation
   
    
    quality system regulation, which requires manufacturers to follow design,
testing, control, documentation and other quality assurance procedures during the design
and manufacturing processes;
 
    
    regulations which govern product labels and labeling, prohibit the promotion of
products for unapproved or off-label uses and impose other restrictions on labeling
and promotional activities;
 
    
    medical device reporting regulations, which require that manufacturers report to
the FDA if their device may have caused or contributed to a death or serious injury or
malfunctioned in a way that would likely cause or contribute to a death or serious
injury if it were to recur; and
 
    
    notices of correction or removal and recall regulations.
   
    
    warning letters or untitled letters;
 
    
    fines, injunction and civil penalties;
 
    
    recall or seizure of our products;
  12




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
    
    customer notification, or orders for repair, replacement or refund;
 
    
    operating restrictions, partial suspension or total shutdown of production or
clinical trials;
 
    
    refusing our request for pre-market approval of new products;
 
    
    withdrawing pre-market approvals that are already granted; and
 
    
    criminal prosecution.
 European Union
  Australia
    Other International Regulations
    13




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Healthcare Regulation
 Recent healthcare policy changes
  Regulations related to prohibiting kickbacks and false claims and protecting patient
confidentiality
   Third Party Reimbursement
     14




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Competition
    
    
    small device size which allows for implantation in the pericardial space
immediately surrounding the heart in all patients unlike other full-output LVADs that
are currently available;
 
    
    our proprietary, hybrid technology system for suspending the pump impellers,
providing a wearless pumping system; and
 
    
    a design that includes a wide-bladed impeller and integrated inflow cannula,
which is to designed to optimize blood flow characteristics.
  
    
    our products success is dependent on our clinical trials proving the safety and
efficacy in the U.S.;
 
    
    our market is an emerging market and is reliant upon acceptance of LVAD
technology.
  Research and Development
   15




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Manufacturing and Assembly
 ,
    Employees
  Legal Proceedings
  Corporate History
    16




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Item 1A.
    
    Risk Factors
  Risks Related to Our Business and Industry
 We have incurred operating losses since our inception and anticipate that we will continue to incur
operating losses for the foreseeable future.
  
    
    manufacturing product;
    
    continuing to conduct multiple clinical trials;
    
    further product research and development for next generation products and peripherals and efforts to
sustain and maintain incremental improvements to existing products and peripherals;
    
    building our service capabilities to meet growing customer demand;
    
    growing, maintaining and protecting our intellectual property;
    
    seeking regulatory approvals;
    
    expanding our sales and marketing capabilities on a global basis, including building a team to support
U.S. commercialization should the FDA approve our device for marketing in the U.S.;
    
    increasing our manufacturing operations to meet increasing demand;
    
    broadening our infrastructure in order to meet the needs of our growing operations; and
    
    complying with the requirements related to being a public company in both the United States and Australia.
   17




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We have a significant amount of indebtedness consisting currently of our convertible senior notes.
We may not be able to generate enough cash flow from our operations to service or pay principal on
our indebtedness, and we may incur additional indebtedness in the future, which could adversely
affect our business, financial condition and results of operations. Upon conversion of our
convertible senior notes at the election of the holders, to the extent we settle such conversion in
cash it could impact our liquidity; to the extent we settle in stock it may dilute our existing
stockholders.
   
    
    make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and
competitive conditions and adverse changes in government regulation;
    
    limit our flexibility in planning for, or reacting to, changes in our business and our industry;
    
    place us at a competitive disadvantage compared to our competitors who have less debt; and
    
    limit our ability to borrow additional amounts for working capital, capital expenditures,
acquisitions, debt service requirements, execution of our business strategy or other purposes.
    18




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We manufacture a Class III device implanted in the heart that subjects us to numerous risks.
  Our products have not yet been approved for commercial sale within the United States, and our
success will depend heavily on our ability to obtain FDA approval to market our HeartWare System in
the U.S. for our initial and any future indications. If we are unable to complete, or experience
significant delays in the completion of, our U.S. trials, our ability to obtain regulatory approval
to commercialize our products within the United States, the largest medical device market in the
world, and our ability to generate revenues, will be materially adversely affected. Delays or
inability to complete trials outside of the U.S. can also negatively impact our business.
    
    
    slower than expected rates of patient recruitment and enrollment, including as a result of our
competitors undertaking similar clinical trials or having functionally comparable products that have
received approval for sale;
    
    failure of patients to complete the clinical trial;
    
    patients preferring to use approved devices or other experimental treatments or devices rather than
our HeartWare System;
    
    unforeseen safety issues;
    
    perceived lack of product efficacy during clinical trials;
    
    inability or unwillingness of patients or medical investigators to follow our clinical trial protocols;
    
    inability to monitor patients adequately during or after treatment;
    
    risks associated with trial design, which may result in a failure of the trial to show statistically
significant results even if the product is effective;
    
    governmental and regulatory delays or changes in regulatory requirements, policies or guidelines;
    
    varying interpretation of data by regulatory agencies; and
    
    perceived lack of product efficacy during clinical trials;
  
    
    take a significant period of time;
    
    require the expenditure of substantial resources;
    
    involve rigorous pre-clinical and clinical testing;
    
    require changes to our products; and
    
    result in limitations on the indicated uses of the products.
  19




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,
  We currently rely entirely on sales of our sole product, the HeartWare System, to generate
revenues. Our products may never achieve market acceptance. In addition, any factors that
negatively impact sales of this product will adversely affect our business, financial condition and
results of operations.
    
    
    the perceived effectiveness of the product;
    
    the prevalence and severity of any adverse events or side effects especially as it relates to survival,
quality of life, stroke and bleeding;
    
    potential advantages over alternative treatments or competitive products;
    
    the strength of marketing and distribution support;
    
    the strength and perceived advantages of our peripherals such as the monitor, controller and batteries; and
    
    sufficient third party coverage or reimbursement.
   20




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Our ability to achieve profitability from a current net loss level will depend on our ability to
increase gross revenue and reduce the per unit cost of producing the HeartWare System by increasing
our customer orders and manufacturing volume.
  We compete against companies that have longer operating histories, more established or approved
products and greater resources than we do, which may prevent us from achieving further market
penetration or improving operating results.
    
    
    the availability of other products and procedures, such as heart transplants;
    
    product performance and design;
    
    product safety;
    
    sales, marketing and distribution capabilities;
    
    comparable clinical outcomes;
    
    success and timing of new product development and introductions; and
    
    intellectual property protection.
 We have limited sales, marketing and distribution experience.
  
    
    we may not be able to attract and build a significant, successful or qualified marketing or sales force;
    
    the cost of establishing, training and providing regulatory oversight for a marketing or sales force
may be substantial; and
    
    there are significant legal and regulatory risks in medical device marketing and sales, and any failure
to comply with all legal and regulatory requirements for sales, marketing and distribution could result
in enforcement action by the FDA or other authorities that could jeopardize our ability to market the
product or could subject us to substantial liability.
  21




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We have limited capabilities and manufacturing personnel, and if our manufacturing facilities are
unable to provide an adequate supply of products, our growth could be limited and our business
could be harmed.
     Fluctuations in foreign currency exchange rates could adversely affect our financial results.
   We may need substantial additional funding and may be unable to raise capital when needed, which
would force us to delay, reduce or eliminate our product development programs or commercialization
efforts.
   22




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We may not meet regulatory quality standards applicable to our manufacturing and quality processes,
which could have an adverse effect on our business, financial condition or results of operations.
   Product issues could result in recalls, substantial costs and write-downs; this could also lead to
delay or termination of our trials.
  We plan to operate in multiple regulatory environments that require costly and time consuming
approvals.
   23




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If we fail to obtain and maintain adequate level of reimbursement for our products by third party
payers, there may be no commercially viable markets for our products or the markets may be much
smaller than expected.
     If hospitals do not conduct or encourage the conduct of destination therapy, or DT, procedures
using the HeartWare System in the future, market opportunities for our product will be diminished.
  
    
    the number of sites approved for destination therapy by relevant regulatory agencies;
    
    the clinical outcomes of destination therapy procedures;
    
    cardiology and referring physician education, and their commitment to destination therapy;
    
    the economics of the destination therapy procedure for individual hospitals, which
includes the costs of the LVAD and related pre- and post-operative procedures and their
reimbursement; and
    
    the economics of hospitals not conducting a destination therapy procedure, including the
costs and related reimbursements of long-term hospitalization.
  24




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The long and variable sales and deployment cycles for our ventricular assist device, or VAD,
systems may cause our product sales and operating results to vary significantly from
quarter-to-quarter.
  Adverse changes in general economic conditions in the United States and overseas could adversely
affect us.
   Healthcare policy changes, including recent federal legislation to reform the U.S. healthcare
system, may have a material adverse effect on us.
   25




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Our manufacturing facilities and the manufacturing facilities of our suppliers must comply with
applicable regulatory requirements. If we fail to achieve regulatory approval for these
manufacturing facilities, our business and our results of operations would be harmed.
  We rely on specialized suppliers for certain components and materials, and we do not have
second-source suppliers for all of our components.
   
    
    we do not believe that we are a major customer of many of our suppliers, in terms of the volume of
components and materials that we purchase, and these suppliers may therefore give other customers
needs higher priority than ours;
    
    we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;
    
    some of our components are extraordinarily complex and must be manufactured to extremely tight
tolerances and specifications with the result that our suppliers, especially new suppliers, may
make errors in manufacturing that could negatively affect the efficacy or safety of our products or
cause our components not to be delivered on time or at all or to be delivered outside of
specifications;
    
    the availability of second-source suppliers may be extremely limited or their implementation as a
supplier may be lengthy due to the tight tolerances and specifications in which we typically
operate;
    
    switching components or changes to our components, specifications or designs may require product
redesign and submission to the FDA or a PMA supplement, which can lead to production interruptions;
    
    our suppliers manufacture products for a range of customers, and fluctuations in demand for the
products these suppliers manufacture for others may affect their ability to deliver products to us
in a timely manner; and
    
    our suppliers may encounter financial hardships unrelated to our demand, which could inhibit their
ability to fulfill our orders and meet our requirements.
  26




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We may not be able to effectively protect our intellectual property rights which could have an
adverse effect on our business, financial condition or results of operations.
    27




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Claims that our current or future products infringe or misappropriate the proprietary rights of
others could adversely affect our ability to sell those products and cause us to incur additional
costs.
     28




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We may need to initiate lawsuits to protect or enforce our patents and other intellectual property
rights, which could be expensive and, if we lose, could cause us to lose some of our intellectual
property rights, which would harm our ability to compete in the market.
  
    
    assert claims of infringement;
    
    enforce our patents;
    
    protect our trade secrets or know-how; or
    
    determine the enforceability, scope and validity of the proprietary
rights of others.
  If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be adversely affected.
  We may be subject to claims that our employees or we have inadvertently or otherwise used or
disclosed alleged trade secrets or other proprietary information of former employers of our
employees.
  We are subject to federal and state laws prohibiting kickbacks and false or fraudulent claims,
which, if violated, could subject us to substantial penalties. Foreign jurisdictions in which we
operate may have similar laws. Additionally, any challenge to or investigation into our practices
under these laws could cause adverse publicity and be costly to respond to, and thus could harm our
business. We can be liable for our distributors failure to comply with these laws as well.
   29




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If we are found to have violated laws protecting the confidentiality of patient health information,
we could be subject to civil or criminal penalties, which could increase our liabilities and harm
our reputation or our business.
  If we are unable to manage our expected growth, we may not be able to commercialize our product
candidates.
  If we fail to successfully introduce next generation products and improvements to our existing
product, our future growth may suffer.
  If we choose to license, invest in or acquire new businesses, products or technologies, instead of
developing them ourselves, these licenses, investments or acquisitions could disrupt our business
and could result in the use of significant amounts of equity, cash or a combination of both.
  
    
    the inability to complete the license, investment or acquisition;
    
    disruption of our ongoing businesses and diversion of the attention of management and other personnel;
  30




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
    
    difficulties in integrating the acquired entities, products or technologies;
    
    risks associated with acquiring intellectual property;
    
    difficulties in operating the acquired business profitably;
    
    the inability to achieve anticipated synergies, cost savings or growth;
    
    potential loss of key employees, particularly those of the acquired business;
    
    difficulties in transitioning and maintaining key customer, distributor and supplier relationships;
    
    risks associated with entering markets in which we have no or limited prior experience; and
    
    unanticipated costs.
  
    
    dilutive issuances of equity securities, which may be sold at a discount to market price;
    
    the use of significant amounts of cash;
    
    the incurrence of debt;
    
    the assumption of significant liabilities;
    
    increased operating costs or reduced earnings;
    
    financing obtained on unfavorable terms;
    
    large one-time expenses; and
    
    the creation of certain intangible assets, including goodwill, the write-down of which
in future periods may result in significant charges to earnings.
  If we cannot successfully manage the additional business and regulatory risks that result from our
expansion into multiple foreign markets, we may experience an adverse impact to our business,
financial condition and results of operations.
  
    
    failure to fulfill foreign regulatory requirements on a timely basis or at all to market the
HeartWare System or other future products;
    
    availability of, and changes in, reimbursement within prevailing foreign health care payment systems;
    
    adapting to the differing laws and regulations, business and clinical practices, and patient
preferences in foreign countries;
    
    difficulties in managing foreign relationships and operations, including any relationships that we
may establish with foreign partners, distributors or sales or marketing agents;
    
    differing levels of protection for intellectual property rights in some countries;
    
    difficulty in collecting accounts receivable and longer collection periods;
    
    costs of enforcing contractual obligations in foreign jurisdictions;
    
    recessions in economies outside of the United States;
    
    political instability and unexpected changes in diplomatic and trade relationships;
    
    currency exchange rate fluctuations; and
    
    potentially adverse tax consequences, including our ability to interpret local tax rules and
implement appropriate tax treatment/collection.
   31




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The competition for qualified personnel is particularly intense in our industry. If we are unable
to retain or hire key personnel, we may not be able to sustain or grow our business.
  Product liability claims could damage our reputation or adversely affect our business.
   32




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Investors could lose confidence in our financial reports, and the value of our shares may be
adversely affected, if our internal controls over financial reporting are found not to be effective
by management or by our independent registered public accounting firm or if we make disclosure of
existing or potential significant deficiencies or material weaknesses in those controls.
   Risks Related to Our Common Stock
 The price of our common stock may fluctuate significantly.
  
    
    future announcements or new information concerning us or our competitors reimbursement, or the potential
market for our products;
    
    regulatory developments (such as the status of FDA approval of our device for the BTT indication),
enforcement actions bearing on advertising, marketing or sales, and disclosure regarding completed, ongoing
or future clinical trials;
    
    quarterly variations in operating results and our liquidity, which we have experienced in the past and
expect to experience in the future;
    
    introduction of new products or changes in product pricing policies by us or our competitors;
    
    acquisition or loss of significant customers, distributors or suppliers;
    
    business acquisitions or divestitures;
    
    changes in third party reimbursement practices;
    
    fluctuations of investor interest in the medical device sector; and
    
    fluctuations in the economy, world political events, foreign currency movements or general market conditions.
  33




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We do not intend to pay cash dividends on our common stock in the foreseeable future.
  Anti-takeover provisions in our charter documents and Delaware law may discourage a third party
from acquiring us, which could limit our stockholders opportunities to sell their shares at a
premium.
  We may be subject to arbitrage risks.
  We are currently considering the possibility of delisting our CHESS Depositary Interests from the
Australian Securities Exchange. If we should decide to pursue delisting, the market for our common
stock in the United States could be disrupted, which would have an adverse affect on our stock
price.
   34




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We may undergo an ownership change for U.S. federal income tax purposes, which would limit our
ability to utilize net operating losses from prior tax years.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
         
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    (Removed and Reserved)
  35




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##### Table of Contents



Part II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   High
    
    
    LowPeriod
    
    (U.S.$)
    
    
    (U.S.$)Fiscal Year 2009:First Quarter
    
    $
    30.00
    
    
    $
    22.80Second Quarter
    
    
    29.70
    
    
    
    23.54Third Quarter
    
    
    30.27
    
    
    
    21.65Fourth Quarter
    
    
    36.80
    
    
    
    29.61Fiscal Year 2010:First Quarter
    
    $
    44.47
    
    
    $
    33.96Second Quarter
    
    
    74.65
    
    
    
    45.14Third Quarter
    
    
    74.67
    
    
    
    60.49Fourth Quarter
    
    
    93.76
    
    
    
    61.90
     36




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Stock Price Performance Graph
   
 Company/Market/Peer Group
    
    12/31/2005
    
    
    12/31/2006
    
    
    12/31/2007
    
    
    12/31/2008
    
    
    2/25/2009
    
    
    12/31/2009
    
    
    12/31/2010HeartWare International, Inc.
(NASDAQ:HTWR)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100.00
    
    
    $
    118.23
    
    
    $
    291.90HeartWare International, Inc. (ASX:HIN)
    
    $
    100.00
    
    
    $
    95.99
    
    
    $
    87.78
    
    
    $
    76.04
    
    
    $
    135.64
    
    
    $
    183.90
    
    
    $
    475.11NASDAQ Composite
    
    $
    100.00
    
    
    $
    110.25
    
    
    $
    121.88
    
    
    $
    73.10
    
    
    $
    66.21
    
    
    $
    106.22
    
    
    $
    125.36Morningstar Medical Devices
    
    $
    100.00
    
    
    $
    94.21
    
    
    $
    89.25
    
    
    $
    57.19
    
    
    $
    59.57
    
    
    $
    76.35
    
    
    $
    71.68
  37




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##### Table of Contents



Equity Compensation Plans
  Number ofsecuritiesto be
    
    
    Weightedissued
    
    
    averageupon
    
    
    exercise
    
    
    Number of securitiesexercise of
    
    
    price of
    
    
    remaining available foroutstanding
    
    
    outstanding
    
    
    future issuance underoptions,
    
    
    options,
    
    
    equity compensation planswarrants
    
    
    warrants
    
    
    (excluding securitiesand rights
    
    
    and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security holders:HeartWare International, Inc. Employee Stock Option Plan
    
    
    324,690
    
    
    $
    31.92
    
    
    
    352,390
    (1)HeartWare International, Inc. Restricted Stock Unit Plan
    
    
    64,289
    
    
    $
    0.00
    
    
    
    14,654
    (1)HeartWare International, Inc. 2008 Stock Incentive Plan (2)
    
    
    555,110
    
    
    $
    5.03
    
    
    
    
    (1)(3)Equity compensation plans not approved by security holders:Non-Plan options
    
    
    5,142
    
    
    $
    26.67
    
    
    
    N/A
 (1)
    
    Future issuances to employees and directors are expected to be made solely under the 2008 Stock
Incentive Plan as any grants under the other plans reduce the availability of grants under the 2008
Stock Incentive Plan.(2)
    
    Outstanding awards under the 2008 Stock Incentive Plan include stock options granted with
exercise prices equal to the fair value of our common stock on the date of grant and restricted
stock units granted with exercise prices of $0.(3)
    
    The 2008 Stock Incentive Plan includes an annual adjustment to shares available for future
issuance at each January 1 based on the prior number of weighted average share outstanding in the
prior year. As of January 1, 2011, the number of shares available for future issuance under the
2008 Stock Incentive Plan was approximately 671,000. 
 Item 6.
    
    Selected Financial Data
   38




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##### Table of Contents



Years Ended December 31,(In thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Consolidated Statement of Operations Data:Revenues
    
    $
    55,164
    
    
    $
    24,172
    
    
    $
    332
    
    
    $
    
    
    
    $
    Cost of revenues
    
    
    24,441
    
    
    
    13,211
    
    
    
    78
    
    
    
    
    
    
    
    Selling, general and administrative
expenses
    
    
    26,642
    
    
    
    16,444
    
    
    
    10,981
    
    
    
    7,303
    
    
    
    6,024Research and development expenses
    
    
    33,108
    
    
    
    15,067
    
    
    
    18,644
    
    
    
    14,636
    
    
    
    11,650Other income (expense), net
    
    
    (370
    )
    
    
    (359
    )
    
    
    5,607
    
    
    
    
    
    
    
    248Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (29,397
    )
    
    
    (20,909
    )
    
    
    (23,764
    )
    
    
    (21,939
    )
    
    
    (17,427
    )Basic and diluted net loss per share
    
    
    (2.17
    )
    
    
    (2.15
    )
    
    
    (3.00
    )
    
    
    (3.60
    )
    
    
    (3.49
    )
 As of December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Consolidated Balance Sheet Data:Cash, cash equivalents and short-term investments
    
    $
    213,478
    
    
    $
    50,835
    
    
    $
    20,804
    
    
    $
    28,276
    
    
    $
    16,698Total assets
    
    
    267,577
    
    
    
    77,953
    
    
    
    30,338
    
    
    
    32,355
    
    
    
    20,243Convertible senior notes, net of discounts (a)
    
    
    88,922
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    167,764
    
    
    
    70,983
    
    
    
    26,756
    
    
    
    29,272
    
    
    
    17,464
 (a)
    
    At December 31, 2010, the aggregate principal amount of our 3.5% convertible senior
notes due December 15, 2017 was $143.75 million.  39




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read together with our consolidated financial statements and related notes appearing
elsewhere in this Annual Report on Form 10-K . This discussion and analysis contains forward-looking
statements that involve risks, uncertainties, judgment and assumptions. You should review the Risk
Factors section of this Annual Report on Form 10-K for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis. Certain abbreviated
key terms have the meanings defined elsewhere in this Annual Report on Form 10-K .
 Overview
     
    
    Completion of enrollment in our ADVANCE trial,
 
    
    FDA approval of a CAP for the ADVANCE trial allowing for the continued enrollment of
patients,
 
    
    Submission of PMA application for bridge-to-transplant indication,
 
    
    IDE approval of our ENDURANCE trial for destination therapy indication, and
 
    
    Being named to the REVIVE-IT study, a study to be completed by the Universities of
Michigan and Pittsburgh on the benefits of LVADs in patients with earlier access to
the device.
     40




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Critical Accounting Policies and Estimates
  Revenue recognition
 Revenue
Recognition
 Inventory Capitalization
    41




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##### Table of Contents



Share-Based Compensation
    Fair Value Measurements
 Fair Value Measurements and Disclosures
   42




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##### Table of Contents



.
  Income Taxes
  Income Taxes
  Reserves
     43




---



##### Table of Contents



Results of Operations
  Fiscal Years 2010 and 2009
 Revenue, net
 Years Ended December 31,2010
    
    
    2009
    
    
    Change(in thousands)Revenue, net
    
    $
    55,164
    
    
    $
    24,172
    
    
    
    128
    %
    Cost of Revenues
   Years EndedDecember 31,2010
    
    
    2009Gross profit (in thousands)
    
    $
    30,723
    
    
    $
    10,961Gross margin %
    
    
    56
    %
    
    
    45
    %
   44




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##### Table of Contents



Selling, General and Administrative
   Years Ended December 31,2010
    
    
    2009
    
    
    Change(in thousands)Total selling, general and administrative expenses
    
    $
    26,642
    
    
    $
    16,444
    
    
    
    62
    %% of operating expenses
    
    
    45
    %
    
    
    52
    %
   Research and Development
   Years Ended December 31,2010
    
    
    2009
    
    
    Change(in thousands)Total research and development expenses
    
    $
    33,108
    
    
    $
    15,067
    
    
    
    120
    %% of operating expenses
    
    
    55
    %
    
    
    48
    %
   45




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Foreign Exchange
  Interest Expense
    Interest Income, net
   46




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##### Table of Contents



Change in Fair Value of Derivative Instrument
  Gain on Early Extinguishment of Debt
  Income Taxes
   Fiscal Years 2009 and 2008
 Revenue, net
    47




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Cost of Revenues
   Years EndedDecember 31,2009
    
    
    2008Gross profit (in thousands)
    
    $
    10,961
    
    
    $
    254Gross margin %
    
    
    45
    %
    
    
    77
    %
  Selling, General and Administrative
      48




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Research and Development
     Foreign Exchange
   Interest Expense
    49




---



##### Table of Contents



Interest Income, net
  Change in Fair Value of Derivative Instrument
  Gain on Early Extinguishment of Debt
  Other, net
  Income Taxes
   Liquidity and Capital Resources
   50




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##### Table of Contents



Years Ended December 31,2010
    
    
    2009(in thousands)Net cash used in operating activities
    
    $
    (27,635
    )
    
    $
    (29,542
    )Net cash used in investing activities
    
    
    (32,132
    )
    
    
    (1,473
    )Net cash provided by financing activities
    
    
    200,926
    
    
    
    60,257Effect of exchange rate changes on cash and
cash equivalents
    
    
    155
    
    
    
    789Net increase in cash and cash equivalents
    
    $
    141,314
    
    
    $
    30,031
 Cash Used in Operating Activities
   Cash Used in Investing Activities
  Cash Provided by Financing Activities
     51




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##### Table of Contents



Operating Capital and Capital Expenditure Requirements
    
    
    commercial acceptance of our products,
    
    costs to manufacture our products,
    
    expenses required to operate multiple clinical trials,
    
    further product research and development for next generation products and peripherals and efforts to
sustain and maintain incremental improvements to existing products,
    
    expanding our sales and marketing capabilities on a global basis, including building a team to support
U.S. commercialization should the FDA approve our device for marketing in the U.S.,
    
    broadening our infrastructure in order to meet the needs of our growing operations, and
    
    complying with the requirements related to being a public company in both the United States and Australia.
 Contractual Obligations
  Less than 1Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    ThereafterConvertible senior notes
    
    $
    178,969
    
    
    $
    5,031
    
    
    $
    10,063
    
    
    $
    10,063
    
    
    $
    153,812Operating lease obligations
    
    
    17,188
    
    
    
    983
    
    
    
    1,952
    
    
    
    1,863
    
    
    
    12,390Purchase obligations
    
    
    13,631
    
    
    
    11,855
    
    
    
    274
    
    
    
    574
    
    
    
    928Total
    
    $
    209,788
    
    
    $
    17,869
    
    
    $
    12,289
    
    
    $
    12,500
    
    
    $
    167,130
  52




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
   Foreign Currency Rate Fluctuations
    53




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##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
 HEARTWARE INTERNATIONAL, INC.
  PageFinancial Statements:Report of Independent Registered Public Accounting Firm
    
    
    55Consolidated Balance Sheets
    
    
    56Consolidated Statements of Operations
    
    
    57Consolidated Statements of Comprehensive Loss
    
    
    58Consolidated Statement of Stockholders Equity
    
    
    59Consolidated Statements of Cash Flows
    
    
    60Notes to Consolidated Financial Statements
    
    
    61
  54




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Report of Independent Registered Public Accounting Firm
 
    Internal
Control-Integrated Framework
  
  55




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    192,148,312
    
    
    $
    50,834,714Short-term investments, net
    
    
    21,330,110
    
    
    
    Accounts receivable, net
    
    
    19,052,672
    
    
    
    11,384,647Inventories, net
    
    
    15,076,590
    
    
    
    8,870,903Prepaid expenses and other current assets
    
    
    2,406,505
    
    
    
    1,663,157Total current assets
    
    
    250,014,189
    
    
    
    72,753,421Property, plant and equipment, net
    
    
    7,484,022
    
    
    
    3,719,415Long-term investments, net
    
    
    4,005,659
    
    
    
    Other intangible assets, net
    
    
    1,595,456
    
    
    
    1,191,917Deferred financing costs, net
    
    
    2,939,149
    
    
    
    Restricted cash
    
    
    1,538,429
    
    
    
    288,429Total assets
    
    $
    267,576,904
    
    
    $
    77,953,182LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,889,643
    
    
    $
    3,122,131Accrued expenses and other current liabilities
    
    
    7,001,350
    
    
    
    3,848,086Total current liabilities
    
    
    10,890,993
    
    
    
    6,970,217Convertible senior notes, net
    
    
    88,921,557
    
    
    
    Commitments and contingencies  See Note 15Stockholders equity:Preferred stock  $.001 par value; 5,000,000
shares authorized; no shares issued and
outstanding at December 31, 2010 and 2009,
respectively
    
    
    
    
    
    
    Common stock  $.001 par value; 25,000,000 shares
authorized; 13,878,686 and 11,786,173 shares
issued and outstanding at December 31, 2010 and
2009, respectively
    
    
    13,879
    
    
    
    11,786Additional paid-in capital
    
    
    302,533,344
    
    
    
    176,698,329Accumulated deficit
    
    
    (127,268,545
    )
    
    
    (97,871,645
    )Accumulated other comprehensive loss:Cumulative translation adjustments
    
    
    (7,548,706
    )
    
    
    (7,855,505
    )Unrealized gain on investments
    
    
    34,382
    
    
    
    Total accumulated other comprehensive loss
    
    
    (7,514,324
    )
    
    
    (7,855,505
    )Total stockholders equity
    
    
    167,764,354
    
    
    
    70,982,965Total liabilities and stockholders equity
    
    $
    267,576,904
    
    
    $
    77,953,182
   56




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HEARTWARE INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Revenues, net
    
    $
    55,164,423
    
    
    $
    24,171,783
    
    
    $
    331,799Cost of revenues
    
    
    24,441,425
    
    
    
    13,210,742
    
    
    
    77,632Gross profit
    
    
    30,722,998
    
    
    
    10,961,041
    
    
    
    254,167Operating expenses:Selling, general and administrative
    
    
    26,642,279
    
    
    
    16,444,202
    
    
    
    10,981,131Research and development
    
    
    33,107,978
    
    
    
    15,067,033
    
    
    
    18,643,557Total operating expenses
    
    
    59,750,257
    
    
    
    31,511,235
    
    
    
    29,624,688Loss from operations
    
    
    (29,027,259
    )
    
    
    (20,550,194
    )
    
    
    (29,370,521
    )Other income (expense):Foreign exchange gain (loss)
    
    
    (502,339
    )
    
    
    (284,985
    )
    
    
    4,550,193Interest expense
    
    
    (431,308
    )
    
    
    (819,944
    )
    
    
    (17,555
    )Interest income, net
    
    
    564,006
    
    
    
    100,549
    
    
    
    1,262,695Change in fair value of derivative instrument
    
    
    
    
    
    
    (3,934,710
    )
    
    
    Gain on early extinguishment of debt, net
    
    
    
    
    
    
    4,605,613
    
    
    
    Other, net
    
    
    
    
    
    
    (25,187
    )
    
    
    (188,433
    )Loss before income taxes
    
    
    (29,396,900
    )
    
    
    (20,908,858
    )
    
    
    (23,763,621
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (29,396,900
    )
    
    $
    (20,908,858
    )
    
    $
    (23,763,621
    )Net loss per common share  basic and
diluted
    
    $
    (2.17
    )
    
    $
    (2.15
    )
    
    $
    (3.00
    )Weighted average shares outstanding  basic
and diluted
    
    
    13,569,876
    
    
    
    9,713,925
    
    
    
    7,929,054
   57




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Net loss
    
    $
    (29,396,900
    )
    
    $
    (20,908,858
    )
    
    $
    (23,763,621
    )Foreign currency translation adjustments
    
    
    306,799
    
    
    
    835,662
    
    
    
    (9,302,940
    )Unrealized gain on investments
    
    
    34,382
    
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (29,055,719
    )
    
    $
    (20,073,196
    )
    
    $
    (33,066,561
    )
   58




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 AccumulatedCommon Shares,
    
    
    
    
    
    
    
    
    
    
    Other$.001 Par Value Per Share
    
    
    Additional
    
    
    
    
    
    
    ComprehensiveShares
    
    
    
    
    
    
    Paid-In
    
    
    Accumulated
    
    
    IncomeIssued
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    (Loss)
    
    
    TotalBalance, December 31, 2007
    
    
    7,088,572
    
    
    $
    7,089
    
    
    $
    81,852,174
    
    
    $
    (53,199,166
    )
    
    $
    611,773
    
    
    $
    29,271,870Issuance of shares pursuant to
capital raise, net of offering
costs
    
    
    1,778,130
    
    
    
    1,778
    
    
    
    29,396,849
    
    
    
    
    
    
    
    
    
    
    
    29,398,627Share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,151,619
    
    
    
    
    
    
    
    
    
    
    
    1,151,619Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,763,621
    )
    
    
    
    
    
    
    (23,763,621
    )Other comprehensive loss:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,302,940
    )
    
    
    (9,302,940
    )Balance, December 31, 2008
    
    
    8,866,702
    
    
    
    8,867
    
    
    
    112,400,642
    
    
    
    (76,962,787
    )
    
    
    (8,691,167
    )
    
    
    26,755,555Issuance of common stock
pursuant to private placement,
net of offering costs
    
    
    2,737,273
    
    
    
    2,737
    
    
    
    58,619,272
    
    
    
    
    
    
    
    
    
    
    
    58,622,009Issuance of common stock
pursuant to share-based awards
    
    
    182,198
    
    
    
    182
    
    
    
    1,546,267
    
    
    
    
    
    
    
    
    
    
    
    1,546,449Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,132,148
    
    
    
    
    
    
    
    
    
    
    
    4,132,148Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,908,858
    )
    
    
    
    
    
    
    (20,908,858
    )Other comprehensive loss:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    835,662
    
    
    
    835,662Balance, December 31, 2009
    
    
    11,786,173
    
    
    
    11,786
    
    
    
    176,698,329
    
    
    
    (97,871,645
    )
    
    
    (7,855,505
    )
    
    
    70,982,965Issuance of common stock
pursuant to public offering, net
of offering costs
    
    
    1,767,900
    
    
    
    1,768
    
    
    
    58,487,069
    
    
    
    
    
    
    
    
    
    
    
    58,488,837Issuance of common stock
pursuant to share-based awards
    
    
    324,613
    
    
    
    325
    
    
    
    3,556,106
    
    
    
    
    
    
    
    
    
    
    
    3,556,431Allocation of fair value of
equity component of convertible
notes
    
    
    
    
    
    
    
    
    
    
    55,037,913
    
    
    
    
    
    
    
    
    
    
    
    55,037,913Allocation of a portion of
convertible notes issuance costs
to equity component of
convertible notes
    
    
    
    
    
    
    
    
    
    
    (1,830,820
    )
    
    
    
    
    
    
    
    
    
    
    (1,830,820
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    10,584,747
    
    
    
    
    
    
    
    
    
    
    
    10,584,747Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,396,900
    )
    
    
    
    
    
    
    (29,396,900
    )Other comprehensive loss:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306,799
    
    
    
    306,799Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,382
    
    
    
    34,382Balance, December 31, 2010
    
    
    13,878,686
    
    
    $
    13,879
    
    
    $
    302,533,344
    
    
    $
    (127,268,545
    )
    
    $
    (7,514,324
    )
    
    $
    167,764,354
   59




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (29,396,900
    )
    
    $
    (20,908,858
    )
    
    $
    (23,763,621
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation of property, plant and equipment
    
    
    1,390,159
    
    
    
    894,928
    
    
    
    663,894Amortization of intangible assets
    
    
    101,500
    
    
    
    75,871
    
    
    
    41,187Share-based compensation expense
    
    
    10,584,747
    
    
    
    4,132,148
    
    
    
    1,151,619Bad debt expense
    
    
    600,000
    
    
    
    
    
    
    
    Amortization of premium on investments
    
    
    500,764
    
    
    
    
    
    
    
    Amortization of discount on convertible notes
    
    
    209,470
    
    
    
    
    
    
    
    Amortization of deferred financing costs
    
    
    11,231
    
    
    
    670,903
    
    
    
    Change in fair value of derivative instrument
    
    
    
    
    
    
    3,934,710
    
    
    
    Gain on early extinguishment of debt, net
    
    
    
    
    
    
    (4,605,613
    )
    
    
    Accrued interest on convertible note
    
    
    209,635
    
    
    
    
    
    
    
    (81,633
    )Loss on disposal of assets
    
    
    
    
    
    
    25,187
    
    
    
    189,380Change in operating assets and liabilities:Accounts receivable
    
    
    (8,155,864
    )
    
    
    (11,140,449
    )
    
    
    (244,198
    )Inventories, net
    
    
    (6,740,688
    )
    
    
    (5,362,838
    )
    
    
    (3,508,065
    )Prepaid expenses and other current assets
    
    
    (732,783
    )
    
    
    (643,939
    )
    
    
    (229,815
    )Accounts payable
    
    
    765,787
    
    
    
    2,523,508
    
    
    
    59,906Accrued expenses and other current liabilities
    
    
    3,018,346
    
    
    
    862,533
    
    
    
    1,660,070Net cash used in operating activities
    
    
    (27,634,596
    )
    
    
    (29,541,909
    )
    
    
    (24,061,276
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments
    
    
    (25,802,150
    )
    
    
    
    
    
    
    Additions to property, plant and equipment
    
    
    (4,575,416
    )
    
    
    (1,030,945
    )
    
    
    (1,490,248
    )Additions to patents
    
    
    (505,039
    )
    
    
    (444,294
    )
    
    
    (546,471
    )Cash paid for security deposits
    
    
    (1,250,000
    )
    
    
    
    
    
    
    (288,429
    )Proceeds from dispositions of assets
    
    
    
    
    
    
    1,973
    
    
    
    Net cash used in investing activities
    
    
    (32,132,605
    )
    
    
    (1,473,266
    )
    
    
    (2,325,148
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    62,760,450
    
    
    
    60,220,006
    
    
    
    30,239,247Payment of common stock issuance costs
    
    
    (4,359,934
    )
    
    
    (1,509,675
    )
    
    
    (840,620
    )Proceeds from issuance of convertible debt
    
    
    143,750,000
    
    
    
    20,000,000
    
    
    
    Repayment of convertible debt
    
    
    
    
    
    
    (20,000,000
    )
    
    
    (1,360,929
    )Payment of convertible debt issuance costs
    
    
    (4,781,201
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    3,556,431
    
    
    
    1,546,449
    
    
    
    Net cash provided by financing activities
    
    
    200,925,746
    
    
    
    60,256,780
    
    
    
    28,037,698Effect of exchange rate changes on cash
    
    
    155,053
    
    
    
    789,453
    
    
    
    (9,124,006
    )CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    141,313,598
    
    
    
    30,031,058
    
    
    
    (7,472,732
    )CASH AND CASH EQUIVALENTS  BEGINNING OF PERIOD
    
    
    50,834,714
    
    
    
    20,803,656
    
    
    
    28,276,388CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    192,148,312
    
    
    $
    50,834,714
    
    
    $
    20,803,656Supplemental disclosure of cash flow information:Interest paid
    
    $
    
    
    
    $
    149,041
    
    
    $
    88,870Supplemental disclosure of non-cash investing and financing activities:Transfers of equipment from inventory to property, plant and equipment
    
    $
    535,000
    
    
    $
    
    
    
    $
    Recognition of fair value of derivative instrument
    
    $
    
    
    
    $
    3,891,109
    
    
    $
    
   60




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HEARTWARE INTERNATIONAL, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Note 1. Description of Business
          61




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Basis of Presentation
  th
 Note 2. Liquidity
    Note 3. Significant Accounting Policies
 Principles of Consolidation
  Accounting Estimates
   62




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Cash and Cash Equivalents
  Investments
  Receivables
    2010Beginning balance
    
    $
    Additions (bad debt expense)
    
    
    600,000Deductions (charge-offs)
    
    
    Ending balance
    
    $
    600,000
 Inventories, net
  December 31,2010
    
    
    2009Raw material
    
    $
    4,279,170
    
    
    $
    2,984,486Work-in-process
    
    
    2,708,840
    
    
    
    1,497,591Finished goods
    
    
    8,088,580
    
    
    
    4,388,826$
    15,076,590
    
    
    $
    8,870,903
   63




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Property, Plant and Equipment
   Estimated
    
    December 31,Useful Lives
    
    2010
    
    
    2009Property, plant and equipmentMachinery and equipment
    
    1.5 to 7 years
    
    $
    8,966,747
    
    
    $
    5,295,217Leasehold improvements
    
    3 to 7 years
    
    
    282,483
    
    
    
    210,570Office equipment, furniture and fixtures
    
    5 to 7 years
    
    
    450,849
    
    
    
    278,587Purchased software
    
    5 to 7 years
    
    
    1,741,132
    
    
    
    487,38811,441,211
    
    
    
    6,271,762Less: accumulated depreciation
    
    
    
    
    (3,957,189
    )
    
    
    (2,552,347
    )$
    7,484,022
    
    
    $
    3,719,415
     Deferred Financing Costs
   64




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Other Intangible Assets, net
  2010
    
    
    2009Weighted Average Life
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortizable Intangible Assets
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationPatents
    
    
    15
    
    
    $
    1,861,684
    
    
    $
    (266,228
    )
    
    $
    1,356,645
    
    
    $
    (164,728
    )
   Revenue Recognition
 Revenue
Recognition
 Product Warranty
     2010
    
    
    2009Beginning balance
    
    $
    99,169
    
    
    $
    Accrual for warranties
    
    
    311,920
    
    
    
    99,169Warranty costs incurred during the period
    
    
    (120,198
    )
    
    
    Ending balance
    
    $
    290,891
    
    
    $
    99,169
  65




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Share-Based Payments
    Impairment of Long-Lived Assets
  Income Taxes
  Income Taxes  Income Taxes
  Translation of Foreign Currency
   66




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
   Research and Development
  Marketing and Advertising Costs
  Fair Value Measurements
  Vendor Concentration
  Concentration of Credit Risk and other Risks and Uncertainties
    67




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  New Accounting Standards
 Software (Topic 985): Certain Revenue Arrangements That Include Software
Elements (a consensus of the FASB Emerging Issues Task Force). Software: Revenue Recognition,
 Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements
 Compensation-Stock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the
Market in Which the Underlying Equity Security Trades
 Note 4. Investments
   68




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Corporate debt
    
    $
    21,294,673
    
    
    $
    35,437
    
    
    $
    
    
    
    $
    21,330,110Total short-term investments
    
    $
    21,294,673
    
    
    $
    35,437
    
    
    $
    
    
    
    $
    21,330,110Long-term investments:U.S. government agency debt
    
    $
    4,006,714
    
    
    $
    
    
    
    $
    (1,055
    )
    
    $
    4,005,659Total long-term investments
    
    $
    4,006,714
    
    
    $
    
    
    
    $
    (1,055
    )
    
    $
    4,005,659
  Note 5. Fair Value Measurements
 Fair Value Measurements and Disclosures,
       Carrying
    
    
    Fair
    
    
    Fair Value Measurements at the Reporting Date UsingValue
    
    
    Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3AssetsShort-term investments
    
    $
    21,330,110
    
    
    $
    21,330,110
    
    
    $
    
    
    
    $
    21,330,110
    
    
    $
    Long-term investments
    
    $
    4,005,659
    
    
    $
    4,005,659
    
    
    $
    
    
    
    $
    4,005,659
    
    
    $
    LiabilitiesConvertible senior notes
    
    $
    89,921,557
    (1)
    
    $
    160,693,813
    
    
    $
    
    
    
    $
    160,693,813
    
    
    $
    
 (1)
    
    The carrying amount of our convertible senior notes is net of unamortized discount. See
Note 8, Debt for more information.   69




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Note 6. Other Balance Sheet Information
  December 31,2010
    
    
    2009Accrued payroll and other employee costs
    
    $
    4,152,833
    
    
    $
    2,487,066Accrued research and development costs
    
    
    671,928
    
    
    
    344,256Accrued VAT
    
    
    647,525
    
    
    
    42,256Accrued professional fees
    
    
    577,237
    
    
    
    347,063Accrued material purchases
    
    
    255,679
    
    
    
    370,226Other accrued expenses
    
    
    696,148
    
    
    
    257,219$
    7,001,350
    
    
    $
    3,848,086
  Note 7. Exchange of Equity Interests Among Entities Under Common Control
  Note 8. Debt
 Convertible Senior Notes
      70




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Debt
  Principal amount
    
    $
    143,750,000Unamortized discount
    
    
    (54,828,443
    )Net carrying amount
    
    $
    88,921,557Equity component
    
    $
    55,037,913
   Stated amount at 3.5% coupon rate
    
    $
    209,636Amortization of discount
    
    
    209,470Amortization of deferred financing costs
    
    
    11,231$
    430,337
  71




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Thoratec Loan Agreement
      Note 9. Leases
   72




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
     OperatingLeasesYear Ending December 31,2011
    
    $
    983,3232012
    
    
    1,951,8932013
    
    
    1,862,6452014
    
    
    1,607,9972015
    
    
    1,371,313After 2015
    
    
    9,410,565Total minimum lease payments
    
    $
    17,187,736
 Note 10. Stockholders Equity
 Preferred Stock
  Common Stock
   73




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Convertible senior notes
    
    
    1,767,923Equity award plans
    
    
    949,2312,717,154
  2010 Public Offering
   2009 Private Placement
   2008 Private Placement
   Note 11. Share-Based Compensation
   74




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  2010
    
    
    2009
    
    
    2008Cost of revenues
    
    $
    937,388
    
    
    $
    805,387
    
    
    $
    37,405General and administrative
    
    
    7,629,282
    
    
    
    2,006,709
    
    
    
    1,025,548Research and development
    
    
    2,018,077
    
    
    
    1,320,052
    
    
    
    88,666$
    10,584,747
    
    
    $
    4,132,148
    
    
    $
    1,151,619
   Equity Plans
  st
 Stock Options
   75




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
   Years EndedDecember 31,2010
    
    
    2009
    
    
    2008Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    60.94
    %
    
    
    60.50
    %
    
    
    58.23
    %Risk-free interest rate
    
    
    2.71
    %
    
    
    2.80
    %
    
    
    6.22
    %Estimated holding period (years)
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.22
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual Life
    
    
    AggregateShares
    
    
    Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2009
    
    
    520,835
    
    
    $
    27.96Granted
    
    
    34,250
    
    
    
    48.57Exercised
    
    
    (131,405
    )
    
    
    27.06Forfeited
    
    
    (9,751
    )
    
    
    27.14Expired
    
    
    (9,563
    )
    
    
    43.29Outstanding at December 31, 2010
    
    
    404,366
    
    
    $
    32.87
    
    
    
    6.70
    
    
    $
    22,119,299Exercisable at December 31, 2010
    
    
    256,118
    
    
    $
    34.35
    
    
    
    5.91
    
    
    $
    13,630,658
       76




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Restricted Stock Units
   WeightedAverageRemainingContractualNumber of
    
    
    Life
    
    
    AggregateUnits
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2009
    
    
    413,135Granted
    
    
    331,425Vested/Exercised
    
    
    (193,208
    )Forfeited
    
    
    (6,487
    )Expired
    
    
    Outstanding at December 31, 2010
    
    
    544,865
    
    
    
    8.97
    
    
    $
    47,713,828Exercisable at December 31, 2010
    
    
    
    
    
    
    
    
    
    $
    
      Note 12. Income Taxes
   Income Taxes
  77




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Years Ended December 31,2010
    
    
    2009
    
    
    2008United States
    
    $
    (29,512,066
    )
    
    $
    (20,204,552
    )
    
    $
    (24,679,024
    )Non-U.S.
    
    
    115,166
    
    
    
    (704,306
    )
    
    
    915,403$
    (29,396,900
    )
    
    $
    (20,908,858
    )
    
    $
    (23,763,621
    )
   At December 31,2010
    
    
    2009Net operating loss and other
carryforwardsUnited States
    
    $
    38,168,532
    
    
    $
    30,009,853Non-U.S.
    
    
    2,906,860
    
    
    
    2,276,745Total net operating losses
    
    
    41,075,392
    
    
    
    32,286,598Deferred tax asset  equity awards
    
    
    3,880,553
    
    
    
    2,664,116Deferred tax liability  convertible notes
    
    
    (20,736,885
    )
    
    
    Other deferred tax assets
    
    
    516,459
    
    
    
    241,930Valuation allowance
    
    
    (24,735,519
    )
    
    
    (35,192,644
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  Year of Expiration
    
    Year Generated
    
    
    U.S. Losses
    
    
    Foreign LossesUnlimited
    
    
    2006
    
    
    
    
    
    
    $
    (3,968,169
    )Unlimited
    
    
    2007
    
    
    
    
    
    
    
    (3,864,254
    )Unlimited
    
    
    2009
    
    
    
    
    
    
    
    (1,829,362
    )2025
    
    
    2005
    
    
    
    (10,975,294
    )
    
    
    2026
    
    
    2006
    
    
    
    (13,460,082
    )
    
    
    2027
    
    
    2007
    
    
    
    (17,344,349
    )
    
    
    2028
    
    
    2008
    
    
    
    (23,928,792
    )
    
    
    2029
    
    
    2009
    
    
    
    (20,543,508
    )
    
    
    2030
    
    
    2010
    
    
    
    (29,962,300
    )
    
    
    $
    (116,214,325
    )
    
    $
    (9,661,785
    )
 Uncertain tax positions
   78




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Note 13. Net Loss Per Common Share
  Common shares issuable upon:
    
    2010
    
    
    2009
    
    
    2008Conversion of convertible notes
    
    
    1,767,923
    
    
    
    
    
    
    
    Exercise of share-based awards
    
    
    949,231
    
    
    
    933,970
    
    
    
    841,220
 Note 14. Business Segment, Geographic Areas and Major Customers
   Years EndedDecember 31,(In thousands)
    
    2010
    
    
    2009Domestic
    
    $
    14,998
    
    
    $
    9,967Germany
    
    
    25,103
    
    
    
    8,550International, excluding Germany
    
    
    15,063
    
    
    
    5,655$
    55,164
    
    
    $
    24,172
   Note 15. Commitments and Contingencies
  
    
    a milestone payment of $1.25 million due within 6 months of the date when the
first circulatory assist device is approved for sale in the United States, provided that
we have at least $25 million in cash on
hand and, if we do not have $25 million at that time, then the payment is deferred until
such time that we have $25 million in cash on hand; and
 
    
    a special payment of up to $500,000 upon a sale of our HeartWare, Inc. subsidiary
if such sale generates proceeds in excess of the aggregate liquidation preferences of
all of HeartWare, Inc.s then outstanding preferred stock.
  79




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
          80




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Note 16. Guarantees
  Note 17. Retirement Savings Plan
  Note 18. Quarterly Financial Information (Unaudited)
  Three Months Ended(In thousands, except per share data)
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 312010Revenues, net
    
    $
    10,703
    
    
    $
    9,757
    
    
    $
    13,817
    
    
    $
    20,887Gross profit
    
    
    5,023
    
    
    
    5,464
    
    
    
    7,814
    
    
    
    12,422Net loss
    
    
    (4,544
    )
    
    
    (9,982
    )
    
    
    (7,844
    )
    
    
    (7,027
    )Net loss per common
share  basic and
diluted (1)
    
    $
    (0.35
    )
    
    $
    (0.73
    )
    
    $
    (0.57
    )
    
    $
    (0.51
    )Weighted average
shares outstanding
 basic and
diluted
    
    
    12,958
    
    
    
    13,683
    
    
    
    13,753
    
    
    
    13,8742009Revenues, net
    
    $
    1,478
    
    
    $
    2,968
    
    
    $
    7,506
    
    
    $
    12,220Gross profit
    
    
    759
    
    
    
    1,389
    
    
    
    3,403
    
    
    
    5,410Net loss
    
    
    (6,233
    )
    
    
    (6,891
    )
    
    
    (5,874
    )
    
    
    (1,911
    )Net loss per common
share  basic and
diluted (1)
    
    $
    (0.70
    )
    
    $
    (0.78
    )
    
    $
    (0.60
    )
    
    $
    (0.17
    )Weighted average
shares outstanding
 basic and
diluted
    
    
    8,867
    
    
    
    8,876
    
    
    
    9,716
    
    
    
    11,369
 (1)
    
    Net loss per common share for each quarter is computed using the weighted-average number of
shares outstanding during that quarter while net loss per common share for the full year is
computed using the weighted-average number of shares outstanding during the year. Thus, the
sum of the four quarters net loss per common share may not equal the full-year earnings per
share.  81




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HEARTWARE INTERNATIONAL, INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  
    
    Net loss for the quarters ended March 31, June 30, September 30 and December 31,
2010 include approximately $1.7 million, $4.3 million, $2.6 million and $2.0 million,
respectively, of share-based compensation expense.
 
    
    Net loss for the quarter ended March 31, 2009 includes $750,000 related to the
commitment discussed in Note 15 above and approximately $693,000 of foreign currency
exchange gains arising from the appreciation in value of our cash holdings, which were
denominated in foreign currencies, namely Australian dollars.
 
    
    Net loss for the quarter ended June 30, 2009 includes $1.1 million of foreign
currency exchange losses arising from the depreciation in value of our cash holdings,
which were denominated in foreign currencies, namely Australian dollars.
 
    
    Net loss for the quarters ended March 31, 2009 and June 30, 2009 include $1.9
million and $2.4 million, respectively, of expenses related to the proposed acquisition
by Thoratec.
 
    
    Net loss for the quarter ended September 30, 2009 includes $2.2 million related to
the change in fair value of a derivative instrument.
 
    
    Net loss for the quarter ended December 31, 2009 includes $4.6 million related to
the net gain on the early extinguishment of debt related to the borrowing and repayment
of all amounts under the Thoratec Loan Agreement.
 Note 19. Subsequent Events
     82




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##### Table of Contents



Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting
  Internal Control 
Integrated Framework
  Attestation Report of Independent Registered Public Accounting Firm
    Internal
Control-Integrated Framework
  83




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Internal
Control-Integrated Framework
   
  84




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  Inherent Limitations on Controls and Procedures
  
 Item 9B.
    
    Other Information
   85




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##### Table of Contents



Part III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    
    PositionDouglas Godshall
    
    
    46
    
    
    Managing Director (1), President
and Chief Executive OfficerDavid McIntyre
    
    
    40
    
    
    Executive Vice President, Chief Financial Officer
and Chief Operating OfficerJeffrey LaRose
    
    
    49
    
    
    Executive Vice President and Chief Scientific OfficerDavid Hathaway
    
    
    63
    
    
    Chief Medical OfficerLauren Farrell
    
    
    43
    
    
    Vice President, Finance and Chief Accounting OfficerJeffrey Held
    
    
    42
    
    
    Vice President, General Counsel and SecretaryRamon Paz
    
    
    53
    
    
    Senior Vice President, Quality AssuranceJames Schuermann
    
    
    42
    
    
    Senior Vice President, Sales and Marketing
 
 (1)
    
    The term Managing Director with respect to Mr. Godshall is a job title given to him by
the Company. Biographical Summaries
 Douglas Godshall
 David McIntyre
 Jeffrey LaRose
  86




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##### Table of Contents



Dr. David Hathaway.
 Lauren Farrell.
 Jeffrey Held.
 Ramon Paz.
 James Schuermann.
  87




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##### Table of Contents



Other Information
   
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
   Australian Disclosure Requirements
  Substantial Shareholders
  Number of
    
    
    PercentageOrdinary CDIs
    
    
    %FMR LLC and FIL Limited
    
    
    72,814,875
    
    
    
    15.0Apple Tree Partners
    
    
    58,588,670
    
    
    
    12.1Wellington Asset Management
    
    
    51,115,225
    
    
    
    10.5Mr. Muneer A. Satter
    
    
    36,872,500
    
    
    
    7.6T. Rowe Price Associates, Inc.
    
    
    29,553,405
    
    
    
    6.1
   88




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##### Table of Contents



Distribution of equity security holders as at 31 January 2011
  Common Stock
    
    
    CDIs*
    
    
    Options (unlisted)
    
    
    RSUs (unlisted)Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Numberof
    
    
    of
    
    
    of
    
    
    of
    
    
    of
    
    
    of
    
    
    of
    
    
    ofholders
    
    
    Shares
    
    
    holders
    
    
    CDIs
    
    
    holders
    
    
    options
    
    
    holders
    
    
    RSUs1  1,000
    
    
    5
    
    
    
    2,890
    
    
    
    120
    
    
    
    74,907
    
    
    
    39
    
    
    
    24,670
    
    
    
    22
    
    
    
    15,0311,001  5,000
    
    
    5
    
    
    
    12,687
    
    
    
    184
    
    
    
    578,911
    
    
    
    30
    
    
    
    77,303
    
    
    
    61
    
    
    
    132,9485,001  10,000
    
    
    1
    
    
    
    5,190
    
    
    
    157
    
    
    
    1,335,681
    
    
    
    11
    
    
    
    63,675
    
    
    
    12
    
    
    
    70,58610,001  100,000
    
    
    2
    
    
    
    109,259
    
    
    
    248
    
    
    
    8,383,981
    
    
    
    3
    
    
    
    76,148
    
    
    
    6
    
    
    
    212,943100,001  and over
    
    
    3
    
    
    
    12,094,828
    
    
    
    56
    
    
    
    47,949,680
    
    
    
    1
    
    
    
    149,464
    
    
    
    1
    
    
    
    112,85716
    
    
    
    12,224,854
    
    
    
    765
    
    
    
    58,323,160
    
    
    
    84
    
    
    
    391,260
    
    
    
    102
    
    
    
    544,365
 *
    
    Holders of CDIs may receive 1 share of common stock for 35 CDIs. The common stock
equivalent of the number of CDIs outstanding at 31 January 2011 was 1,666,376 shares. Unmarketable parcels
  Top 20 Stockholders
 Number of
    
    
    % of CDIsNo.
    
    Holder
    
    CDIs held
    
    
    Outstanding1.
    
    J P Morgan Nominees Australia Limited
    
    
    9,314,710
    
    
    
    16.002.
    
    Phillip Asset Management Ltd. <IB AUS Bioscience Fund I A/C>
    
    
    8,119,625
    
    
    
    13.943.
    
    HSBC Custody Nominees (Australia) Limited
    
    
    5,740,686
    
    
    
    9.864.
    
    Warman Investments Pty. Ltd.
    
    
    4,749,990
    
    
    
    8.165.
    
    National Nominees Limited
    
    
    1,990,379
    
    
    
    3.426.
    
    Warman Investments Pty. Ltd.
    
    
    1,477,067
    
    
    
    2.547.
    
    Nickeli Holdings Pty. Limited <Wade Family S/Fund A/C>
    
    
    1,451,310
    
    
    
    2.498.
    
    Mr. Robert Thomas and Mrs. Kyrenia Thomas <Rob Thomas Super Fund A/C>
    
    
    1,447,950
    
    
    
    2.499.
    
    National Australia Trustees Limited <Hayberry Investments P/L A/C>
    
    
    1,206,941
    
    
    
    2.0710.
    
    MAN Holdings Pty. Limited <Nelson Hybrid A/C>
    
    
    816,655
    
    
    
    1.4011.
    
    JP Morgan Nominees Australia Limited <Cash Income A/C>
    
    
    755,587
    
    
    
    1.3012.
    
    Viking Management Services Pty. Ltd. <VHK Superannuation Fund A/C>
    
    
    727,265
    
    
    
    1.2513.
    
    Asia Union Investments Pty. Ltd.
    
    
    500,000
    
    
    
    0.8614.
    
    Mrs. Kyrenia Thomas
    
    
    500,000
    
    
    
    0.8615.
    
    Spectrok Pty. Ltd. <Hedley Family A/C>
    
    
    499,975
    
    
    
    0.8616.
    
    Mr. Robert B. Stockman
    
    
    499,975
    
    
    
    0.8617.
    
    CS Fourth Nominees Pty. Ltd.
    
    
    487,474
    
    
    
    0.8418.
    
    Citicorp Nominees Pty. Limited
    
    
    457,656
    
    
    
    0.7919.
    
    PBC Investments Pty. Limited <PBC Super Fund A/C>
    
    
    412,000
    
    
    
    0.7120.
    
    Mr. Alex Proimos
    
    
    357,740
    
    
    
    0.61Total
CDIs held by top 20 shareholders
    
    
    41,512,985
    
    
    
    71.29Total CDIs held by all other shareholders
    
    
    16,715,150
    
    
    
    28.71
   89




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##### Table of Contents



Voting Rights
     (a)
    
    instructing CDN, as the legal owner, to vote the HeartWare International shares of common
stock underlying their CDIs in a particular manner. The instruction form must be completed and
returned to HeartWare Internationals share registry prior to the meeting;
 (b)
    
    informing HeartWare International that they wish to nominate themselves or another person to
be appointed as CDNs proxy for the purposes of attending and voting at the general meeting;
 (c)
    
    converting their CDIs into a holding of HeartWare International shares of common stock and
voting these at the meeting (however, if thereafter the former CDI holder wishes to sell their
investment on ASX, it would be necessary to convert HeartWare International shares of common
stock back to CDIs). This must be done prior to the record date for the meeting. See section 7
below for further information regarding the conversion process.
    Required Statements
  (a)
    
    There is no current on-market buy-back of the Companys securities.
 (b)
    
    HeartWare International, Inc. was incorporated in the state of Delaware in the United States
of America.
 (c)
    
    The Company is not subject to Chapters 6, 6A, 6B or 6C of the Corporations Act 2001 (Cth)
dealing with the acquisitions of shares (ie, substantial shareholdings and takeovers).
 (d)
    
    Under the Delaware General Corporation Law, shares are generally freely transferable subject
to restrictions imposed by U.S. federal or state securities laws, by the certificate of
incorporation or by-laws of the Company or by an agreement signed with the holders of the
shares at issue. The Companys certificate of incorporation and by-laws do not impose any
specific restrictions on transfer.
  90




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##### Table of Contents



General Information
     Australian Corporate Governance Statement
  nd
 www.heartware.com
  Principle 1  Lay solid foundations for management and oversight
 Recommendation 1.1  Establish the functions reserved to the Board of Directors and those
delegated to senior executives and disclose those functions
  (a)
    
    the Board of Directors is to provide effective governance over the business and affairs of
HeartWare and its controlled entities (the HeartWare Group) so that the interests of all
stakeholders are protected; and
 (b)
    
    the Chief Executive Officer is to oversee the day-to-day performance of the HeartWare Group
(pursuant to Board delegated powers).
   (a)
    
    decisions about corporate strategy and policies as well as commitments over
prescribed limits;
 (b)
    
    setting major capital expenditure, acquisitions, divestments and funding
arrangements;
  91




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##### Table of Contents



(c)
    
    setting the various internal controls and reporting framework for the
management of the risks inherent in the operations of the HeartWare Group;
 (d)
    
    setting of discretionary financial and related operating limits for management;
and
 (e)
    
    establishing and determining the powers and functions of the committees of the
Board.
 Recommendation 1.2  Disclose the process for evaluating the performance of senior executives
  Recommendation 1.3  Disclosure of information indicated in the guide to reporting on Principle
1of the ASX Governance Recommendations
 Reporting Requirement
  Principle 2  Structure the Board to add value
 Recommendation 2.1  A majority of the Board of Directors should be independent
 Recommendation 2.2  The Chair should be an independent director
 Recommendation 2.3  The roles of Chairman and Chief Executive Officer should not be exercised by
the same individual
   Name
    
    Position
    
    Date Appointed
    
    Tenure*
    
    IndependentRob Thomas
    
    Non-executive director
    
    26 Nov 2004
    
    6.1 years
    
    YesSeth Harrison
    
    Non-executive
Deputy Chairman
    
    26 Nov 2004
    
    6.1 years
    
    NoDenis Wade
    
    Non-executive director
    
    15 Dec 2004
    
    6.0 years
    
    YesChristine Bennett
    
    Non-executive director
    
    15 Dec 2004
    
    6.0 years
    
    YesBob Stockman
    
    Non-executive director
    
    11 Dec 2006
    
    4.1 years
    
    YesRay Larkin Jr
    
    Non-executive Chairman
    
    3 Oct 2009
    
    2.2 years
    
    YesTim Barberich
    
    Non-executive director
    
    29 Apr 2009
    
    2.7 years
    
    YesDoug Godshall
    
    Chief Executive Officer / President / 
Executive Director
    
    28 Oct 2006
    
    4.2 years
    
    No
 *
    
    Calculated as at 31 December 2010.  92




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##### Table of Contents



Independent advice
   Recommendation 2.4  The Board should establish a Nomination Committee
  Reporting Requirement
  Recommendation 2.5  Disclose the process for evaluating the performance of the Board, its
committees and individual directors
 Reporting Requirement
  Recommendation 2.6  Disclosure of information indicated in the guide to reporting on Principle 2
of the ASX Governance Recommendations
 Reporting Requirement
   Principle 3  Promote ethical and responsible decision-making
 Recommendation 3.1  Establish a Code of Conduct and disclose it
    93




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##### Table of Contents



Principle 4  Safeguard integrity in financial reporting
 Recommendation 4.1  The Board should establish an Audit Committee
 Recommendation 4.2  The Audit Committee should: (a) consist of non-executive directors only; (b)
consist of a majority of independent directors; (c) be chaired by an independent chair who is not
chair of the Board; and (d) have at least three members
 Recommendation 4.3  The Audit Committee should have a formal charter
   Reporting Requirement
  Recommendation 4.4  Disclosure of information indicated in the guide to reporting on Principle 4
of the ASX Governance Recommendations
 Reporting Requirement
      Principle 5  Make timely and balanced disclosure
 Recommendation 5.1  Establish written policies designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure accountability at a senior executive level for that
compliance and disclose those policies
 Recommendation 5.2  Disclosure of information indicated in the guide to reporting on Principle 5
of the ASX Governance Recommendations
   94




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##### Table of Contents



Reporting Requirement
  Principle 6  Respect the rights of shareholders
 Recommendation 6.1  Design a communications policy for promoting effective communication with
shareholders and encourage their participation at general meetings and disclose those policies
 Recommendation 6.2  Disclosure of information indicated in the guide to reporting on Principle 6
of the ASX Governance Recommendations
   Reporting requirement
  Principle 7  Recognise and manage risk
 Recommendation 7.1  Establish policies for the oversight and management of material business
risks and disclose it
      95




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##### Table of Contents



Reporting requirement
  Recommendation 7.2  Require management to design and implement the risk management and internal
control system to manage the Companys material business risks and report to it whether those risks
are being managed
effectively (and makes disclosures therein); Disclose that management has reported to the Board as
to the effectiveness of the Companys management of its material business risks
    Recommendation 7.3  Disclose whether the Board has received assurance from the Chief Executive
Officer and the Chief Financial Officer that the declaration under Section 295A of the Corporations
Act is founded on a sound system of risk management and internal control and is operating
effectively in all material respects in relation to financial reporting risks
 Reporting requirement
    Recommendation 7.4  Disclosure of information indicated in the guide to reporting on Principle
7of the ASX Governance Recommendations
  96




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##### Table of Contents



Reporting requirement
  Principle 8  Remunerate fairly and responsibly
 Recommendation 8.1  Establish a Remuneration Committee
 Recommendation 8.2  The Remuneration Committee should be structured so that it: (a) consist of a
majority of independent directors; (b) is chaired by an independent chair; and (c) has at least
three members
 Recommendation 8.3  Clearly distinguish the structure of non-executive directors remuneration
from that of executive directors and senior executives
  Reporting requirement
  Recommendation 8.4  Disclosure of information indicated in the guide to reporting on Principle 8
of the ASX Governance Recommendations
 Reporting requirement
   
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
   97




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##### Table of Contents



Part IV.
 
 Item 15.
    
    Exhibits, Financial Statement Schedules
  1.
    
    
    Financial Statements:Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Comprehensive LossConsolidated Statement of Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements2.
    
    
    Financial Statement Schedules:Required schedule information is included in the Notes to Consolidated
Financial Statements or is omitted because it is either not required
or not applicable.3.
    
    
    Exhibits:See Exhibit Index
  98




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##### Table of Contents



SIGNATURES
  HeartWare International, Inc.Date: February 24, 2011
    
    By
    
    /s/ Douglas Godshall

Name: Douglas GodshallTitle: President and Chief Executive Officer
  Name
    
    Title
    
    Date/s/ Douglas Godshall

Douglas Godshall
    
    President, Chief
Executive Officer and
Director (Principal
Executive Officer)
    
    February 24, 2011/s/ David McIntyre

David McIntyre
    
    Chief Financial Officer
and Chief Operating
Officer (Principal
Financial Officer)
    
    February 24, 2011/s/ Lauren Farrell

Lauren Farrell
    
    Vice President, Finance
(Principal Accounting
Officer)
    
    February 24, 2011/s/ C. Raymond Larkin, Jr.

C. Raymond Larkin, Jr.
    
    Chairman
and Director
    
    February 24, 2011Timothy J. Barberich
    
    Director/s/ Christine Bennett

Christine Bennett
    
    Director
    
    February 24, 2011/s/ Seth Harrison

Seth Harrison
    
    Director
    
    February 24, 2011/s/ Robert Stockman

Robert Stockman
    
    Director
    
    February 24, 2011/s/ Robert Thomas

Robert Thomas
    
    Director
    
    February 24, 2011/s/ Denis Wade

Denis Wade
    
    Director
    
    February 24, 2011
  99




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description2.1
    
    
    Implementation Agreement, dated as of August 5, 2008, between HeartWare International, Inc. and HeartWare Limited. (13)2.2
    
    
    Agreement and Plan of Merger, dated as of February 12, 2009, among HeartWare International, Inc., Thoratec Corporation,
Thomas Merger Sub I, Inc. and Thomas Merger Sub II, Inc. (14)3.1
    
    
    Certificate of Incorporation of HeartWare International, Inc.(4)3.2
    
    
    Bylaws of HeartWare International, Inc. (4)10.01
    
    
    Securities Exchange Agreement between Apple Tree Partners I, L.P., Anthony Low-Beer, Edward Nerssissian, Garrett and Carol
Thunen, HeartWare, Inc. and HeartWare Limited dated December 13, 2004 (1)10.02
    
    
    Amended and Restated Employment Agreement, dated as of December 16, 2009, by and between HeartWare International, Inc. and
Douglas Godshall (11) +10.03
    
    
    Amended and Restated Employment Agreement, dated as of December 16, 2009, by and between HeartWare International, Inc and
David McIntyre (19)+10.04
    
    
    Amended and Restated Employment Agreement, dated as of December 16, 2009, by and between HeartWare International, Inc. and
Jeffrey LaRose (20)+10.05
    
    
    Employment Agreement, dated as of December 5, 2008, between HeartWare International, Inc. and James Schuermann (5) +10.06
    
    
    Employment Agreement, dated as of December 5, 2008, between HeartWare International, Inc. and Ramon Paz (5) +10.07
    
    
    Employment Agreement, dated as of December 5, 2008 between HeartWare Inc. and David R. Hathaway, M.D. (12) +10.08
    
    
    Form of Amendment to Employment Agreement (for Section 16 officers), dated December 2010*+10.09
    
    
    Form of Deed of Indemnity, Access and Insurance Agreement for directors and executive
officers (1) +10.10
    
    
    Letter of Appointment as a Director of the Company dated December 1, 2006 between HeartWare Limited and Robert Stockman (1)
+10.11
    
    
    Letter of Appointment as a Director of the Company dated December 15, 2004 between HeartWare Limited and Robert Thomas (1) +10.12
    
    
    Letter of Appointment as a Director of the Company dated December 15, 2004 between HeartWare Limited and Christine Bennett
(1) +10.13
    
    
    Letter of Appointment as a Director of the Company dated December 15, 2004 between HeartWare Limited and Denis Wade (1) +10.14
    
    
    Letter of Appointment as a Director of the Company dated September 3, 2008 between HeartWare International, Inc. and Ray
Larkin (15) +10.15
    
    
    Letter of Appointment as a Director of the Company dated April 16, 2008 between HeartWare International, Inc. and Timothy
J. Barberich (16) +10.16
    
    
    HeartWare Limited Employee Share Option Plan Rules (1) +10.17
    
    
    HeartWare Limited Share Performance Rights Plan  Plan Rules (3) +10.18
    
    
    HeartWare International, Inc. 2008 Stock Incentive Plan (6) +10.19
    
    
    HeartWare International, Inc. Employee Stock Option Plan (7) +10.20
    
    
    HeartWare International, Inc. Restricted Stock Unit Plan (8) +10.21
    
    
    Form of HeartWare International, Inc. Incentive Option Terms (9) +10.22
    
    
    Nonstatutory Stock Option Notice and Agreement to 2008 Stock Incentive Plan (24) +10.23
    
    
    Restricted Stock Units Notice and Agreement to 2008 Stock Incentive Plan (25) +
  100




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##### Table of Contents



Exhibit No.
    
    Description10.24
    
    
    Lease Agreement, dated as of April 17, 2008, between JDRP Associates No. 1, Ltd. and HeartWare, Inc. (Lease)(10)10.25
    
    
    First Amendment to Lease dated September 30, 2010 (2)10.26
    
    
    Business Lease, dated December 27, 2006, between HeartWare, Inc. and Atlantic-Philadelphia Realty LLC (17)10.27
    
    
    First Amendment to Business Lease, dated August 19, 2008, between HeartWare, Inc. and Atlantic-Philadelphia Realty LLC
(Business Lease) (18)10.28
    
    
    Second Amendment to Business Lease, dated August 9, 2010 (26)10.29
    
    
    Lease Agreement dated December 8, 2010 by and between MCP EWE LLC, as Landlord, HeartWare, Inc., as Tenant, and guaranteed
by HeartWare International, Inc., as Guarantor*10.30
    
    
    Loan Agreement, dated as of February 12, 2009, among HeartWare International, Inc., the Guarantors thereto and Thoratec
Corporation (14)10.31
    
    
    Investors Rights Agreement, dated as of February 12, 2009, between HeartWare International, Inc. and Thoratec Corporation
(14)10.32
    
    
    Indenture dated as of December 15, 2010 between the Company and Wilmington Trust FSB, as trustee (21)10.33
    
    
    First Supplemental Indenture dated as of December 15, 2010 between the Company and Wilmington Trust FSB, as trustee (22)10.34
    
    
    Form of 3.50% Convertible Senior Notes due 2017 (23)21.1
    
    
    List of Subsidiaries *23.1
    
    
    Consent of Independent Registered Public Accounting Firm *31.1
    
    
    Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of Chief Executive Officer *31.2
    
    
    Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of Chief Financial Officer *32.1
    
    
    Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
Chief Executive Officer **32.2
    
    
    Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
Chief Financial Officer **
 
 (1)
    
    Incorporated by reference to the respective exhibits filed with the Companys Registration
Statement on Form 10 (File No. 000-52595) filed with the Securities and Exchange Commission on
April 30, 2007.(2)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 30, 2010.(3)
    
    Incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S-8
(File No. 333-147506) filed with the Securities and Exchange Commission on November 19, 2007.(4)
    
    Incorporated by reference to the respective exhibits filed with the Companys Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 13, 2008.(5)
    
    Incorporated by reference to Exhibit 99 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 5, 2008.(6)
    
    Incorporated by reference to Appendix 12 to the Information Memorandum contained in the
Companys Proxy Statement on Form DEF 14A filed with the Securities and Exchange Commission on
September 22, 2008.(7)
    
    Incorporated by reference to Appendix 9 to the Information Memorandum contained in the
Companys Proxy Statement on Form DEF 14A filed with the Securities and Exchange Commission on
September 22, 2008.(8)
    
    Incorporated by reference to Appendix 10 to the Information Memorandum contained in the
Companys Proxy Statement on Form DEF 14A filed with the Securities and Exchange Commission on
September 22, 2008.(9)
    
    Incorporated by reference to Exhibit 99.4 to the Companys Registration Statement on Form S-8
(File No. 333-155359) filed with the Securities and Exchange Commission on November 13, 2008.(10)
    
    Incorporated by reference to Exhibit 10.01 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 18, 2008.(11)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 18, 2009.  101




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(12)
    
    Incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 26, 2009.(13)
    
    Incorporated by reference to Appendix 1 to the Information Memorandum contained in the
Companys Proxy Statement on Form DEF 14A filed with the Securities and Exchange Commission on
September 22, 2008.(14)
    
    Incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 13, 2009.(15)
    
    Incorporated by reference to Exhibit 10.27 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 26, 2009.(16)
    
    Incorporated by reference to Exhibit 10.28 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 26, 2009.(17)
    
    Incorporated by reference to Exhibit 10.40 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 28, 2008.(18)
    
    Incorporated by reference to Exhibit 10.27 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 23, 2010.(19)
    
    Incorporated by reference to Exhibit 10.5 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 23, 2010.(20)
    
    Incorporated by reference to Exhibit 10.6 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 23, 2010.(21)
    
    Incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 15, 2010.(22)
    
    Incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 15, 2010.(23)
    
    Incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 15, 2010.(24)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 6, 2010.(25)
    
    Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 6, 2010.(26)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 19, 2010.*
    
    Filed herewith**
    
    Furnished herewith+
    
    Management contract or compensatory plan or arrangement.  102