2.2.0.7 false Material Contingencies and Legal Settlements 0217 - Disclosure - Material Contingencies and Legal Settlements true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 Material Contingencies and Legal Settlements [Abstract] 0 alr_MaterialContingenciesAndLegalSettlementsAbstract alr false na duration Material Contingencies and Legal Settlements. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string Material Contingencies and Legal Settlements. false 3 Material Contingencies and Legal Settlements 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(17) Material Contingencies and Legal Settlements</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>(a) Legal Proceedings</i> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our material pending legal proceedings are described in Part I, Item 3, “Legal Proceedings” of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2009, or the Form 10-K. We entered into a settlement related to the two intellectual property litigation matters relating to our health management businesses described in the Form 10-K and, on May 17, 2010, orders of dismissal were entered by the relevant Courts. During the six months ended June 30, 2010, we recognized a net gain of approximately $5.3 million associated with this settlement in other income in our consolidated statements of operations. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>(b) Contingent Consideration Obligations</i> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Effective January 1, 2009, we adopted changes issued by the FASB to accounting for business combinations. These changes apply to all assets acquired and liabilities assumed in a business combination that arise from certain contingencies and require: (i) an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period; otherwise the asset or liability should be recognized at the acquisition date if certain defined criteria are met and (ii) contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be recognized initially at fair value. The adoption of this guidance was done on a prospective basis. For acquisitions completed prior to January 1, 2009, contingent consideration will be accounted for as an increase in the aggregate purchase price, if and when the contingencies occur. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We have contractual contingent consideration terms related to our acquisitions of Accordant, Ameditech Inc., or Ameditech, Binax, Inc., or Binax, Free & Clear, JSM, Mologic, Tapestry, a privately-owned research and development operation acquired in March 2010, Vision Biotech Pty Ltd, or Vision, a privately-owned health management business acquired in 2008, and certain other small businesses. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     (i) <i>Acquisitions Completed Prior to January 1, 2009</i> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Ameditech </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Ameditech, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue targets for the one-year period ending on the first anniversary of the acquisition date and the one-year period ending on the second anniversary of the acquisition date. As of June 30, 2010, the remaining contingent consideration to be earned is approximately $4.0 million. Contingent consideration is accounted for as an increase in the aggregate purchase price, if and when the contingency occurs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Binax </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Binax, the terms of the acquisition agreement provide for $11.0 million of contingent cash consideration payable to the Binax shareholders upon the successful completion of certain new product developments during the five years following the acquisition. The final milestone totaling approximately $3.7 million was earned and accrued during the second quarter of 2010. The achievement of this milestone was accounted for as an increase in the aggregate purchase price during the second quarter of 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Privately-owned health management business </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to a privately-owned health management business which we acquired in 2008, the terms of the acquisition agreement provide for contingent consideration payable upon successfully meeting certain revenue and EBITDA targets. The remaining contingent consideration to be earned will be payable upon meeting certain EBITDA targets for the year ending December 31, 2010. Contingent consideration is accounted for as an increase in the aggregate purchase price, if and when the contingency occurs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Vision </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Vision, the terms of the acquisition agreement provide for incremental consideration payable to the former Vision shareholders upon the completion of certain product development milestones and successfully maintaining certain production levels and product costs during each of the two years following the acquisition date, which was September 4, 2008. As of June 30, 2010, the remaining contingent consideration to be earned is approximately $1.2 million. Contingent consideration is accounted for as an increase in the aggregate purchase price, if and when the contingency occurs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     (ii) <i>Acquisitions Completed on or after January 1, 2009</i> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Accordant </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Accordant, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and cash collection targets starting after the second anniversary of the acquisition date and completed prior to the third anniversary date of the acquisition. The maximum amount of the earn-out payment is $6.0 million and, if earned, payment will be made during 2012 and 2013. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted income approach derived from revenue and cash collection estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The resultant probability-weighted cash flows were originally discounted using a discount rate of 18%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in the timing and amount of revenue and cash collection estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded expense of approximately $0.2 million and $0.3 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, respectively, as a net result of a decrease in the discount period and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $3.6 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Free & Clear </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Free & Clear, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during fiscal year 2010. The maximum amount of the earn-out payment is $30.0 million and, if earned, payment will be made in 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted income approach derived from 2010 revenue and EBITDA estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted cash flows were originally discounted using a discount rate of 13%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in the timing and amount of revenue and EBITDA estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded income of approximately $1.3 million and $5.4 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, respectively, as a net result of changes to revenue and EBITDA estimates, changes in probability assumptions, a decrease in the discount period and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $9.3 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> JSM </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to JSM, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and operating income targets during each of the fiscal years 2010 through 2012. The maximum amount of the earn-out payments is approximately $3.0 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted income approach derived from revenue and operating income estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted cash flows were originally discounted using a discount rate of 16%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in the timing and amount of revenue and operating income estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded expense of approximately $0.1 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, as a net result of a decrease in the discount period, changes in probability assumptions and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $1.2 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Mologic </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Mologic, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting five R&D project milestones during the four years following the acquisition. The maximum amount of the earn-out payments is $19.0 million, which will be paid in shares of our common stock. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted approach derived from the expected delivery value based upon the overall probability of achieving the targets before the corresponding delivery dates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted earn-out amounts were originally discounted using a discount rate of 6%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in management estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded income of approximately $0.6 million and $0.2 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, respectively, as a net result of a decrease in the discount period, adjustments to certain probability factors and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $5.6 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Privately-owned research and development operation </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to our acquisition of a privately-owned research and development operation in March 2010, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets during an eight-year period ending on the eighth anniversary of the acquisition date. The maximum amount of the earn-out payments is $125.0 million and, if earned, payments will be made during the eight year period following the acquisition date. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted approach derived from the overall likelihood of achieving the targets before the corresponding delivery dates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted milestone payments were originally discounted using a discount rate of 6%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded expense of approximately $1.3 million and $1.4 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, respectively, as a net result of a decrease in the discount period and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $37.0 million. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Tapestry </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to Tapestry, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during each of the fiscal years 2010 and 2011. The maximum amount of the earn-out payments is $25.0 million which, if earned, will be paid in shares of our common stock, except in the case that the 2010 financial targets defined under the earn-out agreement are exceeded, in which case the seller may elect to be paid the 2010 earn-out in cash. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We determined the acquisition date fair value of the contingent consideration obligation based on a probability-weighted income approach derived from revenue and EBITDA estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted cash flows were originally discounted using a discount rate of 16%. At each reporting date, we revalue the contingent consideration obligation to the reporting date fair value and record increases and decreases in the fair value as income or expense in our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, changes in the timing and amount of revenue and EBITDA estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. We recorded income of approximately $3.5 million and $3.1 million within general and administrative expense in our consolidated statements of operations during the three and six months ended June 30, 2010, respectively, as a net result of a decrease in the discount period, adjustments to certain probability factors and fluctuations in the discount rate since the acquisition date. As of June 30, 2010, the fair value of the contingent consideration obligation was approximately $13.6 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>(c) Contingent Obligations</i> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Distribution agreement with Epocal </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In November 2009, we entered into a distribution agreement with Epocal, Inc., or Epocal, to distribute the epoc<sup style="font-size: 85%; vertical-align: text-top">®</sup> Blood Analysis System for blood gas and electrolyte testing for $20.0 million, which is recorded on our accompanying consolidated balance sheet in other intangible assets, net. We also entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal for a total potential purchase price of up to $255.0 million, including a base purchase price of up to $172.5 million if Epocal achieves certain gross margin and other financial milestones on or prior to October 31, 2014, plus additional payments of up to $82.5 million if Epocal achieves certain other milestones relating to its gross margin and product development efforts on or prior to this date. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones. The acquisition will also be subject to other closing conditions, including the receipt of any required antitrust or other approvals. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Option agreement with P&G </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G has the right, for a period of 60 days commencing on the fourth anniversary date of the agreement, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G has the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. No gain on the proceeds that we received from P&G through the formation of SPD will be recognized in our financial statements until P&G’s option to require us to purchase its interest in SPD expires. If P&G chooses to exercise its option, the deferred gain carried on our books would be reversed in connection with the repurchase transaction. As of June 30, 2010, the deferred gain of $287.7 million is presented as a current liability on our accompanying consolidated balance sheet. As of December 31, 2009, the deferred gain of $288.7 million is presented as a long-term liability. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <b>•</b> Put arrangement with minority shareholder in Standard Diagnostics </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We entered into a put arrangement as part of a shareholder agreement with respect to the common securities that represent the 21.25% non-controlling interest of a certain minority shareholder in Standard Diagnostics. This put arrangement is exercisable at KRW 40,000 per share by the counterparty upon the occurrence of certain events which are outside of our control. As a result, this non-controlling interest is classified as mezzanine equity on our accompanying consolidated balance sheet as of June 30, 2010. The redeemable non-controlling interest was recorded at its fair value of KRW 57.9 billion, or $49.2 million, as of the consummation of the transaction on February 8, 2010. The redeemable put arrangement has an estimated redemption price of KRW 65.4 billion, or $53.7 million, as of June 30, 2010. The redeemable non-controlling interest will be accreted to the redemption price, through equity, at the point at which the redemption becomes probable. In addition, if the put is exercised, we will incur a penalty in the amount of KRW 63.0 billion, or approximately $51.7 million at June 30, 2010, which will be accounted for as compensation expense at the time of exercise. </div> </div>  <!-- Begin Block Tagged Note false false false us-types:textBlockItemType textblock Includes disclosure of commitments and contingencies. 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