Commitments and Contingencies

Leases

The Company leases its facilities and certain equipment. Commitments for minimum rentals under non-cancelable leases at the end of 2015 are as follows (in thousands):



Years ending December 31,	Operating Leases		Lease obligation
2016	$	2,383	$	922
2017	1,885		931
2018	1,644		940
2019	1,669		950
2020	1,684		959
Thereafter	1,971		1,079
Total minimum lease payments	$	11,236	5,781
Less: amount representing interest			(1,164		)
Present value of lease obligation			4,617
Less: current portion			(585		)
Long-term lease obligation			$	4,032

Operating Leases—Rent expense under operating leases totaled approximately $2.3 million for the year ended December 31, 2015, $3.3 million for the year ended December 31, 2014 and $2.3 million for the year ended December 31, 2013.

In the fourth quarter of 2013, the Company entered into a lease for approximately 30,000 square feet of office space and moved the executive and administrative functions into this facility in the second quarter of 2014. The lease expires in 2022 with options to extend the lease for two additional five-year periods. This operating lease included a lease incentive for tenant improvements of $1.7 million which has been included as a leasehold improvement in property, plant and equipment and as deferred rent in other current liabilities and non-current deferred rent.

McKellar Lease Obligation—During 1999, the Company completed a sale and leaseback transaction of its San Diego facility. The facility was sold for $15.0 million, of which $3.8 million was capital contributed by the Company. The sale was an all cash transaction, netting the Company approximately $7.0 million. The Company is a 25% limited partner in the partnership that acquired the facility. The transaction was deemed a financing transaction under the guidance in ASC Topic 840-40, Accounting for Sales of Real Estate. The assets sold remain on the books of the Company and will continue to be depreciated over the estimated useful life. In December 2009, the Company amended the terms of its lease agreement which had no significant impact on the Company’s financial statements. The amended terms included a new ten-year lease term through December 31, 2019, with options to extend the lease for up to three additional five-year periods.

In the fourth quarter of 2015, the Company amended the terms of its lease agreement to extend the lease term through December 31, 2020. The options to extend the lease for up to three additional five-year periods commence at the new lease term date of December 31, 2020. The Company is amortizing the lease obligation over the new lease term. As the Company accounts for the lease as a financing transaction, the Company adjusted the implied interest rate so that the existing lease obligation is amortized to December 31, 2020. The Company has determined that the partnership is a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not absorb the majority of the partnership’s expected losses or receive a majority of the partnership’s residual returns. The Company made lease payments to the partnership of approximately $1.1 million for each of the three years ended December 31, 2015, 2014 and 2013.

Purchase Commitments

The Company has $4.0 million in firm purchase commitments with respect to planned capital expenditures as of December 31, 2015.

Legal

The Company is involved in various claims and litigation matters from time to time in the ordinary course of business. Management believes that all such current legal actions, in the aggregate, will not have a material adverse effect on the Company. The Company also maintains insurance, including coverage for product liability claims, in amounts which management believes are appropriate given the nature of its business. At December 31, 2015 and 2014, the Company had $0.2 million and $0.3 million, respectively, accrued as a liability for various legal matters where the Company deemed the liability probable and estimable.

Licensing Arrangements

On September 27, 2011, the Company entered into the Second Amendment (the “Amendment”) to Quidel/Inverness Settlement Agreement dated April 27, 2005 (the “Agreement”), as amended by an Addendum dated June 19, 2006, with Alere Inc. (formerly known as Inverness Medical Innovations, Inc.) (“Alere”).

The Amendment, which was effective as of April 1, 2011, amended certain royalty and other provisions in the Agreement and enabled the Company to “buy-down” and “buy-out” its future royalty obligation under the Agreement for payments totaling $29.5 million. Under the Amendment, the Company made an initial cash payment of $13.8 million to Alere in September 2011 in connection with a buy-down of the Company’s royalty obligations for the period beginning July 1, 2011. In addition, the Company exercised its buy-out right for any remaining future royalty obligation by exercising the Royalty Termination Option (as defined in the Amendment) in January 2012, thereby terminating the Company’s obligation to pay future royalties under the Agreement in exchange for a fixed cash payment in the amount of $15.7 million less $1.0 million of specified third quarter 2011 royalties. This amount was paid in February 2012.

In conjunction with Financial Accounting Standards Board Accounting Standard Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820), the Company assigned $28.8 million to the licensed technology and $0.7 million as a one-time charge to cost of sales to settle royalty claims. In determining the fair value allocation between the intangible asset licensed technology and the one-time charge to cost of sales, the Company assessed the past and estimated future revenue streams related to present and future products that use the patents that were subject to the Amendment. The effective life and related amortization of the licensed technology was based on the higher of the percentage of usage or the straight-line method. This percentage of usage was determined using the revenues generated from products covered by the patents that were subject to the Amendment. The terms of the Amendment provide for an estimated useful life of 3.5 years for this asset. The Company recorded $0.7 million of amortization expense in 2015 and $8.0 million in both 2014 and 2013, included as a portion of cost of sales. As of December 31, 2015, this intangible asset has been fully amortized.

In addition to the royalty agreement noted above, the Company has entered into various other licensing and royalty agreements, which largely require payments based on specified product sales as well as the achievement of specified milestones. The Company had royalty and license expenses relating to those agreements of approximately $0.5 million, $0.9 million and $1.0 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Research and Development Agreements

The Company has entered into various research and development agreements that provide it with rights to develop, manufacture and market products using the intellectual property and technology of its collaborative partners. Under the terms of certain of these agreements, the Company is required to make periodic payments based on achievement of certain milestones or resource expenditures. These milestones generally include achievement of prototype assays, validation lots and clinical trials. At December 31, 2015, total future commitments under the terms of these agreements are estimated at $4.2 million. The commitments will fluctuate as we agree to new phases of development under the existing arrangements.

Contingent Consideration

In conjunction with the acquisition of BioHelix Corporation (“BioHelix”) in May 2013, the Company agreed to contingent consideration ranging from $5.0 million to $13.0 million upon achievement of certain research and development milestones and revenue targets through 2018. During 2014, the Company disbursed research and development milestone payments totaling $2.1 million and all payments related to research and development milestones had been disbursed as of December 31, 2014. Payments of $0.1 million and $49,000 related to the revenue royalty earn-out were disbursed during the twelve months ended December 31, 2015 and 2014, respectively. The fair value of the remaining contingent consideration related to the revenue royalty earn-out to be settled in cash is estimated based on the Monte Carlo Simulation Model. Due to changes in the estimated payments and a shorter discounting period, the fair value of the contingent consideration liabilities changed, resulting in gains of $21,000 and $0.8 million recorded to cost of sales in the Consolidated Statements of Operations during the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, the current portion of the contingent consideration is $1.3 million and the non-current portion of the contingent consideration is $4.1 million.

In August 2013, the Company completed a business combination accomplished by acquiring the assets of AnDiaTec GmbH & Co. KG (“AnDiaTec”), a privately-held, diagnostics company, based in Germany. The Company agreed to contingent consideration of up to €0.5 million ($0.5 million based on the December 31, 2015 currency conversion rate) upon achievement of certain revenue targets through 2018. The fair value of the remaining contingent consideration related to the revenue royalty earn-out to be settled in cash is estimated based on the Monte Carlo Simulation Model. Due to changes in the estimated payments and a shorter discounting period, the fair value of the contingent consideration liabilities changed, resulting in a $67,000 gain recorded to cost of sales in the Consolidated Statements of Operations during the year ended December 31, 2015. As of December 31, 2015 the current portion of the contingent consideration is $35,000 and the non-current portion of the contingent consideration is $0.1 million. In addition, the Company agreed to pay the founder of AnDiaTec contingent payments of up to €3.0 million ($3.3 million based on the December 31, 2015 currency conversion rate) upon achievement of certain research and development milestones, subject to continued employment. The Company paid $1.7 million and $0.9 million for the achievement of agreed upon research and development milestones during the twelve months ended December 31, 2015 and 2014, respectively. These costs are recorded as compensation expense included in research and development expense in the Consolidated Statements of Operations.