Commitments And Contingencies

12 Months Ended

Sep. 24, 2011

Commitments And Contingencies [Abstract]

Commitments And Contingencies

12. Commitments and Contingencies

Contingent Earn-Out Payments

In connection with its acquisitions, the Company has incurred the obligation to make contingent earnout payments tied to performance criteria, principally revenue growth of the acquired businesses over a specified period. In certain circumstances, such as a change of control, a portion of these obligations may be accelerated. In addition, contractual provisions relating to these contingent earnout obligations may include covenants to operate the businesses acquired in a manner that may not otherwise be most advantageous to the Company.

These contingent consideration arrangements are recorded as either additional purchase price or compensation expense if continuing employment is required to receive such payments. Pursuant to ASC 805, contingent consideration that is deemed to be part of the purchase price is recorded as a liability based on the estimated fair value of the consideration the Company expects to pay to the former shareholders of the acquired business as of the acquisition date. This liability is remeasured each reporting period with the changes in fair value recorded through a separate line item within the Company's Consolidated Statements of Operations. Increases or decreases in the fair value of contingent consideration liabilities can result from changes in discount rates, and changes in the timing, probabilities and amount of revenue estimates. Contingent consideration arrangements from acquisitions completed prior to the adoption of ASC 805 (effective in fiscal 2010 for the Company) that are deemed to be part of the purchase price of the acquisition are not subject to the fair value measurement requirements of ASC 805 and are recorded as additional purchase price to goodwill.

The Company has an obligation to the former Adiana, Inc. shareholders to make contingent payments tied to the achievement of milestones. The milestone payments include potential contingent payments of up to $155.0 million based on worldwide sales of the Adiana Permanent Contraception System in the first year following FDA approval and on annual incremental sales growth thereafter through December 31, 2012. FDA approval of the Adiana Permanent Contraception System occurred on July 6, 2009, and the Company began accruing contingent consideration in the fourth quarter of fiscal 2009 based on the defined percentage of worldwide sales of the product. Since this contingent consideration obligation arose from an acquisition prior to the adoption of ASC 805, the amounts accrued are recorded as additional purchase price to goodwill and the obligation is not remeasured each reporting period through the statement of operations. The agreement includes an indemnification provision that provides for the reimbursement of qualifying legal expenses and liabilities associated with legal claims against the Adiana products and intellectual property, and the Company has the right to offset contingent consideration payments to the Adiana shareholders with these qualifying legal costs. The Company has been in litigation with Conceptus regarding certain intellectual property matters related to the Adiana product and is recording legal fees related to the Conceptus litigation matter (described in Note 15) as a reduction to the accrued contingent consideration payments, which will result in a lower payment to the Adiana shareholders. The Company made a payment of $19.7 million to the Adiana shareholders in October 2010, net of amounts withheld for the legal indemnification provision. At September 24, 2011, the accrued contingent consideration obligation is $27.4 million, net of qualifying legal costs incurred. On October 17, 2011, the jury returned a verdict in the Conceptus litigation matter in favor of Conceptus awarding damages in the amount of $18.8 million. This amount is included within, and may be offset against, the $27.4 million accrued at September 24, 2011.

The Company also has contingent consideration obligations related to its Sentinelle Medical, Interlace, TCT and Healthcome acquisitions. Pursuant to ASC 805, contingent consideration pertaining to Sentinelle Medical and Interlace is required to be recorded as a liability at fair value and aggregated $103.8 million as of September 24, 2011. In connection with the Interlace acquisition, $2.1 million of the initial consideration was recorded as compensation expense and paid in fiscal 2011 and no further amounts of contingent consideration will be recorded as compensation expense related to this acquisition. Contingent consideration pertaining to TCT and Healthcome is contingent upon future employment and is being recorded as compensation expense as it is earned, and this liability at September 24, 2011 aggregated $17.9 million. For additional information pertaining to the acquisitions, contingent consideration terms and the assumptions used to fair value contingent consideration, refer to Note 3.

A summary of amounts recorded to the Consolidated Statement of Operations in fiscal 2011 is as follows:

Statement of Operations Line Item	Sentinelle Medical			Interlace		TCT		Healthcome		Total
Contingent consideration—compensation expense.	$	—		$	2,102	$	17,581	$	319	$	20,002
Contingent consideration—fair value adjustments		(14,328	)		6,312		—		—		(8,016	)
	$	(14,328	)	$	8,414	$	17,581	$	319	$	11,986

Finance Lease Obligations

The Company has a non-cancelable lease agreement for a building with approximately 164,000 square feet located in Alajuela, Costa Rica, to be used as a manufacturing and office facility. The Company was responsible for a significant portion of the construction costs, and in accordance with ASC 840, Leases, Subsection 40-15-5, the Company was deemed to be the owner of the building during the construction period. The building was completed in fiscal 2008, and the Company has recorded the fair market value of the building and land of $15.1 million within property and equipment on its Consolidated Balance Sheets. At September 24, 2011, the Company has recorded $1.6 million in accrued expenses and $16.9 million in other long-term liabilities related to this obligation in the Consolidated Balance Sheet. The term of the lease, which commenced in May 2008, is for a period of approximately ten years with the option to extend for two consecutive 5-year terms.

At the completion of the construction period, the Company reviewed the lease for potential sale-leaseback treatment in accordance with ASC 840, Subsection 40, Sale-Leaseback Transactions. Based on its analysis, the Company determined that the lease did not qualify for sale-leaseback treatment. Therefore, the building, leasehold improvements and associated liabilities remain on the Company's financial statements throughout the lease term, and the building and leasehold improvements are being depreciated on a straight line basis over their estimated useful lives of 35 years.

Future minimum lease payments, including principal and interest, under this lease were as follows at September 24, 2011:

Fiscal 2012	$	1,616
Fiscal 2013		1,672
Fiscal 2014		1,731
Fiscal 2015		1,791
Fiscal 2016		1,854
Thereafter		3,643
Total minimum payments		12,307
Less-amount representing interest		(4,017	)
Total	$	8,290

The Company also has to a non-cancelable lease agreement for a building with approximately 146,000 square feet located in Marlborough, Massachusetts, to be principally used as an additional manufacturing facility. As part of the lease agreement, the lessor agreed to allow the Company to make significant renovations to the facility to prepare the facility for the Company's manufacturing needs. The Company was responsible for a significant amount of the construction costs and therefore in accordance with ASC 840-40-15-5 was deemed to be the owner of the building during the construction period. The $13.2 million fair market value of the facility is included within property and equipment on the Consolidated Balance Sheet. At September 24, 2011, the Company has recorded $1.0 million in accrued expenses and $15.9 million in other long-term liabilities related to this obligation in the Consolidated Balance Sheet. The term of the lease is for a period of approximately 12 years commencing on November 14, 2006 with the option to extend for two consecutive 5-year terms. Based on its ASC 840-40 analysis, the Company determined that the lease did not qualify for sale-leaseback treatment. Therefore, the improvements and associated liabilities will remain on the Company's financial statements throughout the lease term, and the leasehold improvements are being depreciated on a straight line basis over their estimated useful lives of up to 35 years.

Future minimum lease payments, including principal and interest, under this lease were as follows at September 24, 2011:

Fiscal 2012	$	982
Fiscal 2013		1,091
Fiscal 2014		1,091
Fiscal 2015		1,091
Fiscal 2016		1,201
Thereafter		2,703
Total minimum payments		8,159
Less-amount representing interest		(2,424	)
Total	$	5,735

Non-cancelable Purchase Obligations

The Company has certain non-cancelable purchase obligations primarily related to inventory purchases, and to a lesser extent other operating expense commitments. These obligations are not recorded in the Consolidated Balance Sheet. For reasons of quality assurance, sole source availability or cost effectiveness, certain key components and raw materials are available only from a sole supplier and the Company has certain long-term supply contracts to assure continuity of supply. At September 24, 2011, these commitments aggregated approximately $34.0 million through fiscal 2015.

Concentration of Suppliers

The Company purchases certain components of the Company's products from a single or small number of suppliers. A change in or loss of these suppliers could cause a delay in filling customer orders and a possible loss of sales, which could adversely affect results of operations; however, management believes that suitable replacement suppliers could be obtained in such an event.

Operating Leases

The Company conducts its operations in leased facilities under operating lease agreements that expire through fiscal 2022. The Company leases certain equipment under operating lease agreements that expire through fiscal 2015. Substantially all of the Company's lease agreements require the Company to maintain the facilities during the term of the lease and to pay all taxes, insurance, utilities and other costs associated with those facilities. The Company makes customary representations and warranties and agrees to certain financial covenants and indemnities. In the event the Company defaults on a lease, typically the landlord may terminate the lease, accelerate payments and collect liquidated damages. As of September 24, 2011, the Company was not in default of any covenants contained in the lease. Certain of the Company's lease agreements provide for renewal options. Such renewal options are at rates similar to the current rates under the agreements.

Future minimum lease payments under all of the Company's operating leases at September 24, 2011 are as follows:

Fiscal 2012	$	19,793
Fiscal 2013		16,979
Fiscal 2014		14,724
Fiscal 2015		10,757
Fiscal 2016		9,106
Thereafter		33,461
Total	$	104,820

Rent expense, net of sublease income, was $19.3 million, $17.8 million, and $17.1 million for fiscal years 2011, 2010 and 2009, respectively.

The Company subleases a portion of a building it owns and some of its facilities and has received aggregate rental income of $3.5 million, $3.5 million and $3.1 million in fiscal years 2011, 2010 and 2009, respectively, which has been recorded as an offset to rent expense. The future minimum annual rental income payments under these sublease agreements at September 24, 2011 are as follows:

Fiscal 2012	$	2,686
Fiscal 2013		1,531
Fiscal 2014		1,531
Fiscal 2015		893
Total	$	6,641

Workforce Subject to Collective Bargaining Agreements

Approximately 201 of AEG's German employees are represented by a Works Council and are subject to collective bargaining agreements. None of the Company's other employees are subject to a collective bargaining agreement.