Quarterly report pursuant to Section 13 or 15(d)

Acquisition-related contingent consideration

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Acquisition-related contingent consideration
 9 Months Ended
Jun. 30, 2012
Acquisition-related contingent consideration  
Acquisition-related contingent consideration

11. Acquisition-related contingent consideration

 

In February 2010, the Company acquired 100% of the share capital of DeltaWare Systems, Inc. (“DeltaWare”). As part of the acquisition arrangement, certain payments were to be made to the previous owners of DeltaWare based upon profitability and sales targets. The fair value of these payments was estimated at the time of acquisition based upon a probability-weighted approach based upon management’s estimates of likely payments and the balance is updated on a quarterly basis as more information comes available. Changes to the liability based upon these changes in estimates are recorded as “other income”. The Financial Accounting Standards Board (“FASB”) requires the classification of all assets and liabilities subject to fair value measurement based upon the inputs required for their valuation. As the inputs required for the valuation of these liabilities require significant judgment, they are considered to be Level 3 inputs under the FASB classification.

 

The Company must pay the former owners of DeltaWare the sum of two million Canadian Dollars ($2 million) in the event that certain profitability targets are reached. The Company believes that these targets have been reached and that payment will be made subject to completion of audit procedures and other administrative matters, which we expect to conclude shortly. This balance is shown as a current liability. The Company recorded charges of $0.1 million and $0.2 million during the nine month periods ended June 30, 2012 and 2011, respectively, with respect to this balance.

 

The Company must also pay the former owners of DeltaWare up to four million Canadian Dollars ($4.0 million) based upon the Company making sales of DeltaWare’s products in particular geographic markets prior to December 2016. The Company has recorded a long-term liability of $0.4 million which represents the payment that management assesses will likely be paid. In the event that such sales are anticipated by the Company, this could result in an increase to this liability based upon the size and location of the sales. No such sales have been made to date and the likelihood of future sales between this time and December 2016 is considered low. Management reviews the likelihood of future sales on a quarterly basis and, to the extent that sales opportunities are identified, proposals submitted or contracts won, the Company updates its probability weighted assessment of payment. Changes in this assessment will result in an expense or credit. The contingent consideration payable for any single contract signed would be based upon the population of the area served but would be capped at one million Canadian Dollars per sale.

 

The effect of the contingent consideration on the financial statements is summarized below (in thousands):

 

 

 

Acquisition-related contingent consideration

 

 

 

Current portion

 

Long-term portion

 

Total

 

Balance as of September 30, 2011

 

$

1,840

 

$

388

 

$

2,228

 

Additional estimated consideration

 

101

 

—

 

101

 

Foreign currency translation

 

10

 

2

 

12

 

Balance as of June 30, 2012

 

$

1,951

 

$

390

 

$

2,341