Attached files

file filename
EX-32.1 - EX-32.1 - ALERE INC.d920735dex321.htm
EX-31.2 - EX-31.2 - ALERE INC.d920735dex312.htm
EX-31.1 - EX-31.1 - ALERE INC.d920735dex311.htm
EXCEL - IDEA: XBRL DOCUMENT - ALERE INC.Financial_Report.xls
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q/A

Amendment No. 1

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

COMMISSION FILE NUMBER 001-16789

 

 

 

LOGO

ALERE INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   04-3565120

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices)(Zip code)

(781) 647-3900

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of November 5, 2014 was 83,556,390.

 

 

 


Table of Contents

ALERE INC.

REPORT ON FORM 10-Q/A

For the Quarterly Period Ended September 30, 2014

This Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. A number of important factors could cause actual results of Alere Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These  factors include, but are not limited to, the risk factors detailed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2013 and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review these risk factors, and should not  place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Alere Inc. and its subsidiaries.

TABLE OF CONTENTS

 

 

         PAGE  

PART I. FINANCIAL INFORMATION

     4   

Item 1.

 

Financial Statements (unaudited)

     4   
 

a) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013

     4   
 

b) Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September  30, 2014 and 2013

     5   
 

c) Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

     6   
 

d) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

     7   
 

e) Notes to Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     45   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     59   

Item 4.

 

Controls and Procedures

     60   

PART II. OTHER INFORMATION

     61   

Item 1.

 

Legal Proceedings

     61   

Item 1A.

 

Risk Factors

     61   

Item 6.

 

Exhibits

     63   

SIGNATURE

     64   

 

2


Table of Contents

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of Alere Inc. (the “Company”) for the three months ended September 30, 2014 (the “Quarterly Period”), as originally filed with the Securities and Exchange Commission (the “SEC”) on November 7, 2014 (the “Original Report”), is being filed to restate the Company’s previously issued consolidated financial statements for the Quarterly Period and to revise related disclosures, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the Quarterly Period. Concurrently with the filing of this Form 10-Q/A, the Company is also filing Amendment No. 2 on Form 10-K/A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “Annual Period”), as originally filed with the SEC on March 5, 2015 (the “Original 2014 Annual Report”), to provide similar updates.

This Form 10-Q/A includes restated financial information for the three and nine months ended September 30, 2014. In addition, this Form 10-Q/A includes revised, but not restated, financial information for the three and nine months ended September 30, 2013 and as of December 31, 2013, to reflect certain uncorrected errors previously deemed immaterial. Further, we assessed the materiality of the errors in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, Materiality, and concluded that these errors were not material to the consolidated financial statements as of and for each of three and nine months ended September 30, 2013, and as of December 31, 2013. In accordance with SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, the consolidated financial statements have been revised as of and for the three and nine months ended September 30, 2013, and as of December 31, 2013, in this filing. Refer to Note 2, Revision of Previously Reported Amounts, in the notes to the accompanying consolidated financial statements for additional information about this revision. In addition to the correction of errors, this Form 10-Q/A reflects certain uncorrected errors previously deemed immaterial and the effect of discontinued operations, as if the divestitures of our health management business in January 2015 and the ACS Companies in October 2014 had occurred prior to the periods reflected herein.

As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on May 5, 2015, on May 1, 2015, the Audit Committee of the Board of Directors of the Company, after considering the recommendations of management, concluded that the Company’s consolidated financial statements and other financial data for the Annual Period and all interim periods therein (the “Non-Reliance Periods”), as reported in the Original 2014 Annual Report and the Company’s Quarterly Reports on Form 10-Q filed on May 6, 2014, August 6, 2014 and November 7, 2014, should not be relied upon because of errors identified therein. Following the completion of the Company’s review of those errors and related matters, the Audit Committee of the Board of Directors determined that the consolidated financial statements and other financial information in the Company’s Quarterly Reports on Form 10-Q filed on May 6, 2014 and August 6, 2014 did not require any restatement and could therefore be relied upon as originally filed, in all material respects. The Company’s consolidated financial statements (including audit reports), other financial information and related disclosures included in the Original 2014 Annual Report and the Original Report, as well as press releases, investor presentations or other communications issued prior to the date hereof that relate to the Non-Reliance Periods should not be relied upon and are superseded in their entirety by this Form 10-Q/A and the Form 10-K/A being filed concurrently herewith.

As more fully described in Note 2 to the accompanying consolidated financial statements, the errors that caused the Audit Committee to conclude that the Company’s consolidated financial statements and other financial information for the Non-Reliance Periods should not be relied upon were identified during the course of preparing the Company’s consolidated financial statements and other financial data for the three months ended March 31, 2015. The errors corrected by the restatements relate primarily to the accounting for deferred taxes related to the Company’s discontinued operations, including in connection with the divestiture of the health management business which was completed in January 2015 and the ACS Companies divestiture which was completed in October 2014. The error in the accounting for deferred taxes associated with the health management business divestiture was primarily due to the incorrect determination of the book and tax basis of the businesses sold and other tax attributes of the transaction that resulted in an incorrect determination of realizable deferred tax assets and the resulting tax benefit that was recorded in discontinued operations in the three months ended December 31, 2014. The error in accounting for the ACS Companies divestiture was primarily due to the failure to record deferred taxes associated with the reversal, in the three months ended September 30, 2014, of contingent consideration that originated from a taxable business combination.

For the convenience of the reader, this Form 10-Q/A sets forth the Original Report in its entirety, however, this Form 10-Q/A amends and restates only the following items of the Original Report:

This Form 10-Q/A amends and restates only the following items of the Original Report:

Part I. Financial Information

 

    Item 1. Financial Statements (unaudited)

 

    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

    Item 4. Controls and Procedures

Part II. Other Information

 

    Item 6. Exhibits

In order to preserve the nature and character of the disclosures set forth in the Original Report, this Form 10-Q/A speaks as of the date of the filing of the Original Report, November 7, 2014, and the disclosures contained in this Form 10-Q/A have not been updated to reflect events occurring subsequent to that date, other than those associated with the restatement.

In connection with the filing of the Original 2014 Annual Report, management identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. We did not design effective controls to assess the accounting for deferred taxes related to dispositions. This control deficiency resulted in an adjustment to our deferred tax assets and income from discontinued operations which was reflected in our consolidated financial statements for the year ended December 31, 2014 included in our Original 2014 Annual Report. Subsequent to the filing of the Original 2014 Annual Report, the material weakness also resulted in the material adjustments to our deferred taxes and income from discontinued operations that led to restatement of the consolidated financial statements for the three and nine months ended September 30, 2014 (see Note 2 included in Item 1 of this report) and for the year ended December 31, 2014. The effects of the material weakness, as well as our plan to remediate the material weakness, are discussed in more detail in Item 4, as amended hereby.

Currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2 and 32.1. This Form 10-Q/A should be read in conjunction with the Form 10-K/A being filed concurrently herewith and the Company’s other filings with the SEC.

 

3


Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2014     2013     2014     2013  
     (Restated)    

 

    (Restated)    

 

 

Net product sales

   $ 507,625      $ 505,596      $ 1,499,302      $ 1,527,732   

Services revenue

     137,403        140,868        406,547        403,631   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

  645,028      646,464      1,905,849      1,931,363   

License and royalty revenue

  4,182      4,184      15,998      13,113   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

  649,210      650,648      1,921,847      1,944,476   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

  271,250      256,312      785,918      756,715   

Cost of services revenue

  75,102      71,832      221,356      205,932   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

  346,352      328,144      1,007,274      962,647   

Cost of license and royalty revenue

  1,236      2,009      3,900      5,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

  347,588      330,153      1,011,174      967,911   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  301,622      320,495      910,673      976,565   

Operating expenses:

Research and development

  38,726      40,478      114,855      120,729   

Sales and marketing

  122,760      141,748      391,605      419,712   

General and administrative

  104,794      109,626      338,986      318,622   

Loss on disposition

  —        5,885      638      5,885   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  35,342      22,758      64,589      111,617   

Interest expense, including amortization of original issue discounts and deferred financing costs

  (52,332   (53,301 )    (156,276   (203,053

Other income (expense), net

  (8,087   (7,068 )    2,164      (7,259
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before provision (benefit) for income taxes

  (25,077   (37,611 )    (89,523   (98,695

Provision (benefit) for income taxes

  65,489      (14,702 )    69,273      (25,372
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before equity earnings of unconsolidated entities, net of tax

  (90,566   (22,909 )    (158,796   (73,323

Equity earnings of unconsolidated entities, net of tax

  6,277      5,753      13,716      13,238   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  (84,289   (17,156 )    (145,080   (60,085

Loss from discontinued operations, net of tax

  (14,401   (1,916 )    (4,082   (12,329
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  (98,690   (19,072 )    (149,162   (72,414

Less: Net income (loss) attributable to non-controlling interests

  (306   359      (136   601   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Alere Inc. and Subsidiaries

  (98,384   (19,431 )    (149,026   (73,015

Preferred stock dividends

  (5,367   (5,367   (15,926   (15,926
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

$ (103,751 $ (24,798 $ (164,952 $ (88,941
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per common share:

Loss from continuing operations

$ (1.08 $ (0.28 $ (1.94 $ (0.94

Loss from discontinued operations

  (0.17   (0.02   (0.05   (0.15
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per common share

$ (1.25 )  $ (0.30 $ (1.99 $ (1.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares - basic and diluted

  83,115      81,735      82,719      81,417   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2014     2013     2014     2013  
     (Restated)    

 

    (Restated)    

 

 

Net loss

   $ (98,690   $ (19,072   $ (149,162   $ (72,414
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

Changes in cumulative translation adjustment

  (96,425   67,268      (69,950   (42,515

Unrealized losses on available for sale securities

  —       —       (17   —    

Unrealized gains on hedging instruments

  7      20      21      31   

Minimum pension liability adjustment

  481      (369   468      335   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

  (95,937   66,919      (69,478   (42,149

Income tax provision (benefit) related to items of other comprehensive income (loss)

  —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

  (95,937   66,919      (69,478   (42,149
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  (194,627   47,847      (218,640   (114,563

Less: Comprehensive income (loss) attributable to non-controlling interests

  (306   359      (136   601   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries

$ (194,321 $ 47,488    $ (218,504 $ (115,164
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

 

     September 30, 2014     December 31, 2013  
     (Restated)    

 

 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 431,351      $ 355,431   

Restricted cash

     35,581        3,458   

Marketable securities

     794        858   

Accounts receivable, net of allowances of $73,851 and $69,146 at September 30, 2014 and December 31, 2013, respectively

     464,696        487,377   

Inventories, net

     360,041        365,267   

Deferred tax assets

     21,526        48,858   

Prepaid expenses and other current assets

     123,056        125,645   

Assets held for sale

     325,181        380,483   
  

 

 

   

 

 

 

Total current assets

  1,762,226      1,767,377   

Property, plant and equipment, net

  463,282      466,497   

Goodwill

  2,981,502      3,006,997   

Other intangible assets with indefinite lives

  46,831      56,702   

Finite-lived intangible assets, net

  1,375,662      1,557,426   

Restricted cash

  —        29,370   

Deferred financing costs, net and other non-current assets

  73,702      83,497   

Investments in unconsolidated entities

  91,175      86,830   

Deferred tax assets

  7,404      7,389   

Non-current income tax receivable

  2,336      —     
  

 

 

   

 

 

 

Total assets

$ 6,804,120    $ 7,062,085   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short-term debt and current portion of long-term debt

$ 87,871    $ 64,112   

Current portion of capital lease obligations

  4,150      5,962   

Accounts payable

  209,857      181,642   

Accrued expenses and other current liabilities

  367,930      381,894   

Liabilities related to assets held for sale

  100,024      133,242   
  

 

 

   

 

 

 

Total current liabilities

  769,832      766,852   
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

Long-term debt, net of current portion

  3,683,614      3,757,788   

Capital lease obligations, net of current portion

  12,278      13,242   

Deferred tax liabilities

  280,611      285,034   

Other long-term liabilities

  177,215      161,031   
  

 

 

   

 

 

 

Total long-term liabilities

  4,153,718      4,217,095   
  

 

 

   

 

 

 

Commitments and contingencies

STOCKHOLDERS’ EQUITY:

Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at September 30, 2014 and December 31, 2013); Authorized: 2,300 shares; Issued: 2,065 shares at September 30, 2014 and December 31, 2013; Outstanding: 1,774 shares at September 30, 2014 and December 31, 2013

  606,468      606,468   

Common stock, $0.01 par value; authorized: 200,000 shares; Issued: 90,964 shares at September 30, 2014 and 89,666 shares at December 31, 2013; Outstanding: 83,285 shares at September 30, 2014 and 81,987 shares at December 31, 2013

  91      90   

Additional paid-in capital

  3,340,239      3,319,168   

Accumulated deficit

  (1,790,838   (1,641,812

Treasury stock, at cost, 7,679 shares at September 30, 2014 and December 31, 2013

  (184,971   (184,971

Accumulated other comprehensive loss

  (95,165   (25,687
  

 

 

   

 

 

 

Total stockholders’ equity

  1,875,824      2,073,256   

Non-controlling interests

  4,746      4,882   
  

 

 

   

 

 

 

Total equity

  1,880,570      2,078,138   
  

 

 

   

 

 

 

Total liabilities and equity

$ 6,804,120    $ 7,062,085   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

    Nine Months Ended
September 30,
 
    2014
(Restated)
    2013  

Cash Flows from Operating Activities:

   

Net loss

  $  (149,162   $ (72,414

Loss from discontinued operations, net of tax

    (4,082     (12,329
 

 

 

   

 

 

 

Loss from continuing operations

  (145,080   (60,085

Adjustments to reconcile net loss to net cash provided by operating activities:

Tax benefit related to discontinued operations

  9,594      5,480   

Non-cash interest expense, including amortization of original issue discounts and deferred financing costs

  11,824      13,905   

Depreciation and amortization

  250,763      279,473   

Non-cash charges for sale of inventories revalued at the date of acquisition

  —        1,880   

Non-cash stock-based compensation expense

  7,751      14,462   

Impairment of inventory

  1,536      243   

Impairment of long-lived assets

  6,866      1,463   

Loss on sale of fixed assets

  4,679      800   

Equity earnings of unconsolidated entities, net of tax

  (13,716   (13,238

Deferred income taxes

  9,557      (62,292

Loss on extinguishment of debt

  —        35,603   

Loss on disposition

  638      5,885   

Bargain purchase gain

  —        (5,707

Other non-cash items

  3,683      7,646   

Changes in assets and liabilities, net of acquisitions:

Accounts receivable, net

  12,643      (64,053

Inventories, net

  (30,446   (73,967

Prepaid expenses and other current assets

  (8,646   (9,090

Accounts payable

  38,687      18,475   

Accrued expenses and other current liabilities

  13,761      31,642   

Other non-current liabilities

  28,001      (8,119

Cash paid for contingent consideration

  (21,078   (6,865
 

 

 

   

 

 

 

Net cash provided by continuing operations

  181,017      113,541   

Net cash provided by discontinued operations

  34,417      45,575   
 

 

 

   

 

 

 

Net cash provided by operating activities

  215,434      159,116   
 

 

 

   

 

 

 

Cash Flows from Investing Activities:

Increase in restricted cash

  (3,227   (33,251

Purchases of property, plant and equipment

  (73,035   (72,436

Proceeds from sale of property, plant and equipment

  1,144      5,828   

Cash received from disposition

  5,454      32,000   

Cash paid for business acquisitions, net of cash acquired

  (75   (166,196

Cash received from sales of marketable securities

  47      —     

Cash received from equity method investments

  198      11,262   

Proceeds from sale of equity investments

  9,526      —     

Decrease in other assets

  1,024      21,462   
 

 

 

   

 

 

 

Net cash used in continuing operations

  (58,944   (201,331

Net cash used in discontinued operations

  (8,853   (21,316
 

 

 

   

 

 

 

Net cash used in investing activities

  (67,797   (222,647
 

 

 

   

 

 

 

Cash Flows from Financing Activities:

Cash paid for financing costs

  (5   (9,798

Cash paid for contingent purchase price consideration

  (23,608   (25,197

Cash paid for dividends

  (15,970   (15,970

Proceeds from issuance of common stock, net of issuance costs

  35,593      17,555   

Proceeds from issuance of long-term debt

  41      459,152   

Payments on long-term debt

  (47,302   (454,168

Proceeds from issuance of short-term debt

  806      —     

Net proceeds (payments) under revolving credit facilities

  498      138,768   

Excess tax benefits on exercised stock options

  415      434   

Principal payments on capital lease obligations

  (4,639   (5,025

Other

  —        (18,928
 

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

  (54,171   86,823   

Net cash used in discontinued operations

  (1,075   (2,615
 

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  (55,246   84,208   
 

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

  (9,445   4,982   
 

 

 

   

 

 

 

Net increase in cash and cash equivalents

  82,946      25,659   

Cash and cash equivalents, beginning of period - continuing operations

  355,431      316,479   

Cash and cash equivalents, beginning of period - discontinued operations

  6,477      11,855   
 

 

 

   

 

 

 

Cash and cash equivalents, end of period

  444,854      353,993   

Less: Cash and cash equivalents of discontinued operations, end of period

  13,503      9,478   
 

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

$ 431,351    $ 344,515   
 

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation of Financial Information

The accompanying consolidated financial statements of Alere Inc. are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair statement. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows. Our audited consolidated financial statements for the year ended December 31, 2013 included information and footnotes necessary for such presentation and were included in our Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, or SEC, on March 3, 2014. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2013.

Certain reclassifications of prior period amounts have been made in order to retrospectively present 2014 and 2013 discontinued operations. These reclassifications of financial information related to the discontinued operations have no effect on net income or equity. Given the retrospective presentation of discontinued operations in these financial statements, including with respect to our segment financial information, we have renamed our former health information solutions segment to patient self-testing.

Certain amounts presented may not recalculate directly, due to rounding.

(2) Restatement and Revision of Previously Reported Consolidated Financial Statements

In connection with the preparation of our consolidated financial statements for the three months ended March 31, 2015, we determined that, in 2014, we had incorrectly accounted for income taxes associated with two divestitures. We determined that, for the three months ended December 31, 2014, we incorrectly accounted for the deferred taxes related to the divestiture of our health management business. The adjustment to correct this error resulted in a decrease to deferred tax assets and to income from discontinued operations of $30.3 million. In addition, for the three months ended September 30, 2014, we incorrectly accounted for deferred taxes in connection with the ACS Companies divestiture. The adjustment to correct this error resulted in a $7.0 million increase to deferred tax liabilities and a decrease in income from discontinued operations.

The impact of these errors was determined to be material to our fiscal year 2014 consolidated financial statements and, accordingly, we have restated our consolidated financial statements and related footnotes for the year ended December 31, 2014 and for the three and nine-month periods ended September 30, 2014. We also corrected additional errors in the three and nine months ended September 30, 2014 as part of this restatement to correct out-of-period adjustments that were previously determined to be immaterial. These adjustments include:

 

    An adjustment to increase the provision for income taxes and increase income taxes payable related to an audit settlement by $3.4 million for the three and nine months ended September 30, 2014.

 

    A $4.6 million decrease in general and administrative expense related to our contingent consideration obligations in the nine months ended September 30, 2014.

 

    An adjustment to reverse the benefit from certain foreign tax credits which increased the provision for income taxes by $4.2 million for the nine-month period ended September 30, 2014.

 

    Additional adjustments that, in the aggregate, decrease loss from continuing operations before provision (benefit) for income taxes by $1.3 million and $3.9 million and increase provision for income taxes by $0.9 million and $0.3 million for the three and nine-month periods ended September 30, 2014, respectively.

In connection with those restatements, we corrected additional errors in the three and nine months ended September 30, 2013 and as of December 31, 2013. We concluded that the correction of these errors was not material individually, or in the aggregate, to our previously issued financial statements. Accordingly, we are revising our consolidated financial statements and related footnotes for the three and nine months ended September 30, 2013 and our balance sheet as of December 31, 2013. The adjustments in these periods are all corrections to out-of-period adjustments and include:

 

    An adjustment to record additional income taxes payable related to various foreign subsidiaries which decreases the benefit from income taxes by $3.2 million for the nine months ended September 30, 2013.

 

    Additional adjustments that, in the aggregate, decrease and increase loss from continuing operations before provision (benefit) for income taxes by $0.7 million and $2.4 million, respectively, and decrease the benefit from income taxes by $1.1 million and $0.4 million for the three and nine months ended September 30, 2013, respectively.

 

    A 39.6 million adjustment to increase accrued expense and other current liabilities and decrease liabilities related to assets held for sale as of December 31, 2013.

 

    A $15.0 million adjustment to increase short-term debt and current portion of long-term debt and decrease long-term debt, net of current portion as of December 31, 2013.

The following schedules reconcile the amounts as previously reported to the corresponding restated or revised amounts in these consolidated financial statements:

 

8


Table of Contents
     Three Months Ended September 30, 2014  
Restated Consolidated Statement of Operations (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net product sales

   $ 505,850      $ 1,775      $ 507,625   

Net product sales and services revenue

   $ 643,253      $ 1,775      $ 645,028   

Net revenue

   $ 647,435      $ 1,775      $ 649,210   

Cost of net product sales

   $ 271,663      $ (413   $ 271,250   

Cost of services revenue

   $ 73,614      $ 1,488      $ 75,102   

Cost of product sales and services revenue

   $ 345,277      $ 1,075      $ 346,352   

Cost of net revenue

   $ 346,513      $ 1,075      $ 347,588   

Gross profit

   $ 300,922      $ 700      $ 301,622   

General and administrative

   $ 105,347      $ (553   $ 104,794   

Operating income

   $ 34,089      $ 1,253      $ 35,342   

Other income (expense), net

   $ (8,172   $ 85      $ (8,087

Loss from continuing operations before provision for income taxes

   $ (26,415   $ 1,338      $ (25,077

Provision for income taxes

   $ 61,101      $ 4,388      $ 65,489   

Loss from continuing operations before equity earnings of unconsolidated entities, net of tax

   $ (87,516   $ (3,050   $ (90,566

Loss from continuing operations

   $ (81,239   $ (3,050   $ (84,289

Loss from discontinued operations, net of tax

   $ (7,099   $ (7,302   $ (14,401

Net loss

   $ (88,338   $ (10,352   $ (98,690

Net loss attributable to Alere Inc. and Subsidiaries

   $ (88,032   $ (10,352   $ (98,384

Net loss available to common stockholders

   $ (93,399   $ (10,352   $  (103,751

Basic and diluted net loss per common share attibutable to Alere Inc. and Subsidiaries:

      

Loss from continuing operations

   $ (1.04   $ (0.04   $ (1.08

Loss from discontinued operations

   $ (0.08   $ (0.09   $ (0.17

Net loss per common share

   $ (1.12   $ (0.13   $ (1.25

 

9


Table of Contents
     Three Months Ended September 30, 2013  
Revised Consolidated Statement of Operations (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net product sales

   $ 506,200      $ (604   $ 505,596   

Net product sales and services revenue

   $ 647,068      $ (604   $ 646,464   

Net revenue

   $ 651,252      $ (604   $ 650,648   

Cost of net product sales

   $ 256,253      $ 59      $ 256,312   

Cost of services revenue

   $ 71,343      $ 489      $ 71,832   

Cost of product sales and services revenue

   $ 327,596      $ 548      $ 328,144   

Cost of net revenue

   $ 329,605      $ 548      $ 330,153   

Gross profit

   $ 321,647      $ (1,152   $ 320,495   

General and administrative

   $ 110,115      $ (489   $ 109,626   

Operating income

   $ 23,421      $ (663   $ 22,758   

Other income (expense), net

   $ (8,403   $ 1,335      $ (7,068

Loss from continuing operations before benefit for income taxes

   $ (38,283   $ 672      $ (37,611

Benefit for income taxes

   $ (15,773   $ 1,071      $ (14,702

Loss from continuing operations before equity earnings of unconsolidated entities, net of tax

   $ (22,510   $ (399   $ (22,909

Loss from continuing operations

   $ (16,757   $ (399   $ (17,156

Loss from discontinued operations, net of tax

   $ (2,732   $ 816      $ (1,916

Net loss

   $ (19,489   $ 417      $ (19,072

Net loss attributable to Alere Inc. and Subsidiaries

   $ (19,848   $ 417      $ (19,431

Net loss available to common stockholders

   $ (25,215   $ 417      $ (24,798

Basic and diluted net loss per common share attributable to Alere Inc. and Subsidiaries:

      

Loss from continuing operations

   $ (0.28   $ 0.00      $ (0.28

Loss from discontinued operations

   $ (0.03   $ 0.01      $ (0.02

Net loss per common share

   $ (0.31   $ 0.01      $ (0.30
     Nine Months Ended September 30, 2014  
Restated Consolidated Statement of Operations (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net product sales

   $ 1,497,287      $ 2,015      $  1,499,302   

Net product sales and services revenue

   $ 1,903,834      $ 2,015      $  1,905,849   

Net revenue

   $ 1,919,832      $ 2,015      $  1,921,847   

Cost of net product sales

   $ 787,381      $ (1,463   $ 785,918   

Cost of services revenue

   $ 216,978      $ 4,378      $ 221,356   

Cost of product sales and services revenue

   $ 1,004,359      $ 2,915      $  1,007,274   

Cost of net revenue

   $ 1,008,259      $ 2,915      $  1,011,174   

Gross profit

   $ 911,573      $ (900   $ 910,673   

General and administrative

   $ 346,510      $ (7,524   $ 338,986   

Operating income

   $ 57,965      $ 6,624      $ 64,589   

Other income (expense), net

   $ 241      $ 1,923      $ 2,164   

Loss from continuing operations before provision for income taxes

   $ (98,070   $ 8,547      $ (89,523

Provision for income taxes

   $ 61,397      $ 7,876      $ 69,273   

Loss from continuing operations before equity earnings of unconsolidated entities, net of tax

   $ (159,467   $ 671      $ (158,796

Loss from continuing operations

   $ (145,751   $ 671      $ (145,080

Income (loss) from discontinued operations, net of tax

   $ 3,220      $ (7,302   $ (4,082

Net loss

   $ (142,531   $ (6,631   $ (149,162

Net loss attributable to Alere Inc. and Subsidiaries

   $ (142,395   $ (6,631   $ (149,026

Net loss available to common stockholders

   $ (158,321   $ (6,631   $ (164,952

Basic and diluted net loss per common share attributable to Alere Inc. and Subsidiaries:

      

Loss from continuing operations

   $ (1.95   $ 0.01      $ (1.94

Income (loss) from discontinued operations

   $ 0.04      $ (0.09   $ (0.05

Net loss per common share

   $ (1.91   $ (0.08   $ (1.99

 

10


Table of Contents
     Nine Months Ended September 30, 2013  
Revised Consolidated Statement of Operations (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net product sales

   $ 1,528,480      $ (748   $  1,527,732   

Services revenue

   $ 405,114      $ (1,483   $ 403,631   

Net product sales and services revenue

   $ 1,933,594      $ (2,231   $  1,931,363   

Net revenue

   $ 1,946,707      $ (2,231   $  1,944,476   

Cost of net product sales

   $ 756,538      $ 177      $ 756,715   

Cost of services revenue

   $ 204,465      $ 1,467      $ 205,932   

Cost of products sales and services revenue

   $ 961,003      $ 1,644      $ 962,647   

Cost of net revenue

   $ 966,267      $ 1,644      $ 967,911   

Gross profit

   $ 980,440      $ (3,875   $ 976,565   

General and administrative

   $ 320,089      $ (1,467   $ 318,622   

Operating income

   $ 114,025      $ (2,408   $ 111,617   

Loss from continuing operations before benefit for income taxes

   $ (96,287   $ (2,408   $ (98,695

Benefit for income taxes

   $ (28,995   $ 3,623      $ (25,372

Loss from continuing operations before equity earnings of unconsolidated entities, net of tax

   $ (67,292   $ (6,031   $ (73,323

Loss from continuing operations

   $ (54,054   $ (6,031   $ (60,085

Loss from discontinued operations, net of tax

   $ (12,883   $ 554      $ (12,329

Net loss

   $ (66,937   $ (5,477   $ (72,414

Net loss attributable to Alere Inc. and Subsidiaries

   $ (67,538   $ (5,477   $ (73,015

Net loss available to common stockholders

   $ (83,464   $ (5,477   $ (88,941

Basic and diluted net loss per common share attributable to Alere Inc. and Subsidiaries:

      

Loss from continuing operations

   $ (0.87   $ (0.07   $ (0.94

Loss from discontinued operations

   $ (0.16   $ 0.01      $ (0.15

Net loss per common share

   $ (1.03   $ (0.06   $ (1.09
     Three Months Ended September 30, 2014  
Restated Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net loss

   $ (88,338   $ (10,352   $ (98,690

Comprehensive loss

   $ (184,275   $ (10,352   $ (194,627

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (183,969   $ (10,352   $ (194,321
     Three Months Ended September 30, 2013  
Revised Consolidated Statement of Comprehensive Income (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net loss

   $ (19,489   $ 417      $ (19,072

Comprehensive income

   $ 47,430      $ 417      $ 47,847   

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 47,071      $ 417      $ 47,488   

 

11


Table of Contents
     Nine Months Ended September 30, 2014  

Restated Consolidated Statement of Comprehensive Loss (in thousands)

   As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net loss

   $ (142,531   $ (6,631   $ (149,162

Comprehensive loss

   $ (212,009   $ (6,631   $ (218,640

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (211,873   $ (6,631   $ (218,504
     Nine Months Ended September 30, 2013  
Revised Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net loss

   $ (66,937   $ (5,477   $ (72,414

Comprehensive loss

   $ (109,086   $ (5,477   $ (114,563

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (109,687   $ (5,477   $ (115,164
     As of September 30, 2014  
Restated Consolidated Balance Sheet (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Deferred tax assets

   $ 20,947      $ 579      $ 21,526   

Prepaid expenses and other current assets

   $ 124,275      $ (1,219   $ 123,056   

Total current assets

   $ 1,762,866      $ (640   $ 1,762,226   

Property and equipment, net

   $ 465,878      $ (2,596   $ 463,282   

Goodwill

   $ 2,982,767      $ (1,265   $ 2,981,502   

Total assets

   $ 6,808,621      $ (4,501   $ 6,804,120   

Accrued expenses and other current liabilities

   $ 365,439      $ 2,491      $ 367,930   

Liabilities related to assets held for sale

   $ 93,028      $ 6,996      $ 100,024   

Total current liabilities

   $ 760,345      $ 9,487      $ 769,832   

Deferred tax liabilities

   $ 282,538      $ (1,927   $ 280,611   

Other long-term liabilities

   $ 179,448      $ (2,233   $ 177,215   

Total long-term liabilities

   $ 4,157,878      $ (4,160   $ 4,153,718   

Accumulated deficit

   $ (1,780,135   $ (10,703   $ (1,790,838

Accumulated other comprehensive loss

   $ (96,040   $ 875      $ (95,165

Total stockholders’ equity

   $ 1,885,652      $ (9,828   $ 1,875,824   

Total equity

   $ 1,890,398      $ (9,828     1,880,570   

Total liabilities and equity

   $ 6,808,621      $ (4,501   $ 6,804,120   
     As of December 31, 2013  
Revised Consolidated Balance Sheet (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Accounts receivable, net of allowances of $76,587 at December 31, 2013

   $ 489,392      $ (2,015   $ 487,377   

Inventories

   $ 362,167      $ 3,100      $ 365,267   

Deferred tax assets

   $ 48,085      $ 773      $ 48,858   

Prepaid expenses and other current assets

   $ 123,598      $ 2,047      $ 125,645   

Assets held for sale

   $ 371,291      $ 9,192      $ 380,483   

Total current assets

   $ 1,754,280      $ 13,097      $ 1,767,377   

Property and equipment, net

   $ 468,232      $ (1,735   $ 466,497   

Goodwill

   $ 3,016,518      $ (9,521   $ 3,006,997   

Deferred tax assets

   $ 7,959      $ (570   $ 7,389   

Total assets

   $ 7,060,814      $ 1,271      $ 7,062,085   

Short-term debt and current portion of long-term debt

   $ 49,112      $ 15,000      $ 64,112   

Accounts payable

   $ 179,565      $ 2,077      $ 181,642   

Accrued expenses and other current liabilities

   $ 341,076      $ 40,818      $ 381,894   

Liabilities related to assets held for sale

   $ 172,799      $  (39,557   $ 133,242   

Total current liabilities

   $ 748,514      $ 18,338      $ 766,852   

Long-term debt, net of current portion

   $ 3,772,788      $ (15,000   $ 3,757,788   

Deferred tax liabilities

   $ 293,370      $ (8,336   $ 285,034   

Other long-term liabilities

   $ 150,081      $ 10,950      $ 161,031   

Total long-term liabilities

   $ 4,229,481      $ (12,386   $ 4,217,095   

Accumulated deficit

   $ (1,636,256   $ (5,556   $  (1,641,812

Accumulated other comprehensive loss

   $ (26,562   $ 875      $ (25,687

Total stockholders’ equity

   $ 2,077,937      $ (4,681   $ 2,073,256   

Total equity

   $ 2,082,819      $ (4,681   $ 2,078,138   

Total liabilities and equity

   $ 7,060,814      $ 1,271      $ 7,062,085   
     Nine Months Ended September 30, 2014  
Restated Consolidated Statement of Cash Flows (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net loss

   $ (142,531   $ (6,631   $ (149,162

Income (loss) from discontinued operations, net of tax

   $ 3,220      $ (7,302   $ (4,082

Loss from continuing operations

   $ (145,751   $ 671      $ (145,080

Deferred income taxes

   $ 8,527      $ 1,030      $ 9,557   

Accounts receivable, net

   $ 14,658      $ (2,015   $ 12,643   

Prepaid expenses and other current assets

   $ (6,723   $ (1,923   $ (8,646

Accrued expenses and other current liabilities

   $ 9,157      $ 4,604      $ 13,761   

Other non-current liabilities

   $ 31,831      $ (3,830   $ 28,001   

Purchases of property, plant and equipment

   $ (74,489   $ 1,454      $ (73,035
     Nine Months Ended September 30, 2013  
Revised Consolidated Statement of Cash Flows (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net loss

   $ (66,937   $ (5,477   $ (72,414

Loss from discontinued operations, net of tax

   $ (12,883   $ 554      $ (12,329

Loss from continuing operations

   $ (54,054   $ (6,031   $ (60,085

Impairment of long-lived assets

   $ 1,286      $ 177      $ 1,463   

Deferred income taxes

   $ (63,536   $ 1,244      $ (62,292

Accounts receivable, net

   $ (66,284   $ 2,231      $ (64,053

Accrued expenses and other current liabilities

   $ 29,263      $ 2,379      $ 31,642   

(3) Discontinued Operations

On January 9, 2015, we completed the sale of our health management business to OptumHealth Care Solutions for a purchase price of approximately $600.1 million, subject to a customary post-closing working capital adjustment. We used the net cash proceeds of the sale to repay $575.0 million in aggregate principal amount of outstanding indebtedness under our senior secured credit facility.

On October 10, 2014, we completed the sale of our ACS subsidiary to ACS Acquisition, LLC (the “Purchaser”), pursuant to the terms of a Membership Interest Purchase Agreement with Sumit Nagpal. In connection with the sale of ACS, we also agreed to sell our subsidiary Wellogic ME FZ – LLC (“Wellogic,” together with ACS, the “ACS Companies”) to the Purchaser, subject to the satisfaction of routine requirements of Dubai law relating to the transfer of equity. The ACS Companies were included in our patient self-testing segment. The purchase price for the ACS Companies consisted of cash proceeds of $2.00 at closing and contingent consideration of up to an aggregate of $7.0 million, consisting of (i) payments based on the gross revenues of the ACS Companies, (ii) payments to be made in connection with financing transactions by the Purchaser or the ACS Companies and (iii) payments to be made in connection with a sale by the Purchaser of the ACS Companies. In connection with the sale, we agreed to reimburse the Purchaser for up to $750,000 of the Purchaser’s and the ACS Companies’ transitional expenses.

 

12


Table of Contents

We accounted for our divestiture of the health management business in accordance with ASU No. 2014-08 (See Note 19) and for the ACS Companies in accordance with Accounting Standards Codification Topic 205, Presentation of Financial Statements. The following assets and liabilities associated with the health management business have been segregated and classified as assets held for sale and liabilities related to assets held for sale, as appropriate, in the consolidated balance sheets as of September 30, 2014 and December 31, 2013, respectively (in thousands):

 

     September 30, 2014
(Restated)
     December 31, 2013  

Assets

     

Cash and cash equivalents

   $ 13,503       $ 6,477   

Restricted cash

     2,675         2,915   

Accounts receivable, net of allowances of $8,094 and $7,497 at September 30, 2014 and December 31, 2014, respectively

     54,330         59,337   

Inventories, net

     2,061         2,018   

Deferred tax assets – current

     12,604         12,604   

Prepaid expenses and other current assets

     4,301         6,074   

Property, plant and equipment, net

     61,044         76,932   

Goodwill

     84,343         86,365   

Finite-lived intangible assets, net

     89,899         127,185   

Other non-current assets

     421         576   
  

 

 

    

 

 

 

Total assets held for sale

$ 325,181    $ 380,483   
  

 

 

    

 

 

 

Liabilities

Short-term debt and current portion of capital lease obligations

$ 1,016    $ 893   

Accounts payable

  7,311      7,806   

Accrued expenses and other current liabilities

  43,596      49,243   

Capital lease obligations, net of current portion

  546      1,165   

Deferred tax liabilities – non-current

  34,254      35,879   

Other long-term liabilities

  13,301      38,256   
  

 

 

    

 

 

 

Total liabilities related to assets held for sale

$ 100,024    $ 133,242   
  

 

 

    

 

 

 

The following summarized financial information related to the health management business and the ACS Companies, which were previously included in our patient self-testing reporting segment, has been segregated from continuing operations and has been reported as discontinued operations in our consolidated statements of operations (in thousands):

 

    

Three Months
Ended
September 30,

2014

(Restated)

    Three Months
Ended
September 30,

2013
    Nine Months
Ended
September 30,

2014
(Restated)
    Nine Months
Ended
September,

2013
 

Net revenue

   $ 89,501      $ 102,630      $ 271,668      $ 310,409   

Cost of net revenue

     (54,314     (55,630     (155,976     (173,457

Research and development

     —          (20     —          (1,724

Sales and marketing

     (14,270     (17,839     (43,152     (55,756

General and administrative

     (16,924     (32,263     (75,244     (98,740

Interest expense

     (149     (120     (400     (220

Other income (expense), net

     (117     870        (1,189     320   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations before provision (benefit) for income taxes

  3,727      (2,372   (4,293   (19,168

Provision (benefit) for income taxes

  18,128      (456   (211   (6,839
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net of tax

$ (14,401 $ (1,916 $ (4,082 $ (12,329
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

(4) Cash and Cash Equivalents

We consider all highly-liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At September 30, 2014, our cash equivalents consisted of money market funds.

(5) Restricted Cash

We had restricted cash of $35.6 million and $32.8 million as of September 30, 2014 and December 31, 2013, respectively. As of December 31, 2013, $29.4 million was classified as non-current on our Consolidated Balance Sheet, as it secures a foreign bank loan arrangement that we entered into during the third quarter of 2013 and, under the terms of the loan agreement, is required to remain on deposit for two years.

(6) Inventories, Net

Inventories are stated at the lower of cost (first in, first out) or market and are comprised of the following (in thousands):

 

     September 30, 2014      December 31, 2013  

Raw materials

   $ 126,265       $ 121,671   

Work-in-process

     74,914         79,559   

Finished goods

     158,862         164,037   
  

 

 

    

 

 

 
$ 360,041    $ 365,267   
  

 

 

    

 

 

 

 

14


Table of Contents

(7) Stock-based Compensation

We recorded stock-based compensation expense in our consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013, respectively, as follows (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014      2013      2014     2013  

Cost of net revenue

   $ 291       $ 287       $ 863      $ 797   

Research and development

     280         1,111         (340     2,641   

Sales and marketing

     920         975         2,778        2,597   

General and administrative

     1,678         3,289         4,450        8,427   
  

 

 

    

 

 

    

 

 

   

 

 

 
  3,169      5,662      7,751      14,462   

Benefit for income taxes

  (878   (1,511   (2,001   (2,869
  

 

 

    

 

 

    

 

 

   

 

 

 
$ 2,291    $ 4,151    $ 5,750    $ 11,593   
  

 

 

    

 

 

    

 

 

   

 

 

 

In connection with the departure of three of our senior executives, we recorded a reversal of stock-based compensation expense in the amount of $5.6 million during the second quarter of 2014, relating to the impact on their prior stock option awards upon their resignations. Of the $5.6 million reversal, $2.2 million was recorded through research and development and $3.4 million through general and administrative.

(8) Net Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the periods presented (in thousands, except per share data):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014
(Restated)
     2013      2014
(Restated)
     2013  

Basic and diluted net loss per common share:

           

Numerator:

           

Loss from continuing operations

   $ (84,289    $ (17,156    $ (145,080    $ (60,085

Preferred stock dividends

     (5,367      (5,367      (15,926      (15,926
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from continuing operations attributable to common shares

  (89,656   (22,523   (161,006   (76,011

Less: Net income (loss) attributable to non-controlling interest

  (306   359      (136   601   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from continuing attributable to Alere Inc. and Subsidiaries

  (89,350   (22,882   (160,870   (76,612
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations

  (14,401   (1,916   (4,082   (12,329
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss available to common stockholders

$ (103,751 $ (24,798 $ (164,952 $ (88,941
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

Weighted-average common shares outstanding - basic and diluted

  83,115      81,735      82,719      81,417   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted net loss per common share:

Loss from continuing operations attributable to Alere Inc. and Subsidiaries

$ (1.08 $ (0.28 $ (1.94 $ (0.94

Loss from discontinued operations

  (0.17   (0.02   (0.05   (0.15
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted net loss per common share attributable to Alere Inc. and Subsidiaries

$ (1.25 $ (0.30 $ (1.99 $ (1.09
  

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

The following potential dilutive securities were not included in the calculation of diluted net loss per common share for our continuing operations because the inclusion thereof would be antidilutive (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014      2013      2014      2013  

Denominator:

           

Options to purchase shares of common stock

     7,687         10,239         7,687         10,239   

Warrants

     4         4         4         4   

Conversion shares related to 3% convertible senior subordinated notes

     3,411         3,411         3,411         3,411   

Conversion shares related to subordinated convertible promissory notes

     27         27         27         27   

Conversion shares related to Series B convertible preferred stock

     10,239         10,239         10,239         10,239   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total number of antidilutive potentially issuable shares of common stock excluded from diluted common shares outstanding

  21,368      23,920      21,368      23,920   
  

 

 

    

 

 

    

 

 

    

 

 

 

(9) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

For each of the three and nine months ended September 30, 2014 and 2013 Series B preferred stock dividends amounted to $5.3 million and $15.9 million, respectively, which reduced earnings available to common stockholders for purposes of calculating net loss per common share for each of the respective periods. As of September 30, 2014, $5.3 million of Series B preferred stock dividends was accrued. As of October 15, 2014, payments have been made covering all dividend periods through September 30, 2014.

The Series B preferred stock dividends for the three and nine months ended September 30, 2014 and 2013 were paid in cash.

(b) Changes in Stockholders’ Equity and Non-controlling Interests

A summary of the changes in stockholders’ equity and non-controlling interests comprising total equity for the nine months ended September 30, 2014 and 2013 is provided below (in thousands):

 

     Nine Months Ended September 30,  
     2014 (Restated)     2013  
     Total
Stockholders’
Equity
    Non-
controlling
Interests
    Total
Equity
    Total
Stockholders’
Equity
    Non-
controlling
Interests
     Total
Equity
 

Equity, beginning of period

   $ 2,073,256      $ 4,882      $ 2,078,138      $ 2,177,167      $ 2,282       $ 2,179,449   

Issuance of common stock under employee compensation plans

     35,593        —         35,593        17,555        —          17,555   

Preferred stock dividends

     (15,970     —         (15,970     (15,970     —          (15,970

Stock-based compensation expense

     7,751        —         7,751        14,462        —          14,462   

Excess tax benefits on exercised stock options

     (6,302     —         (6,302     (1,283     —          (1,283

Non-controlling interest from acquisition

     —         —         —          —         1,788         1,788   

Net income (loss)

     (149,026     (136     (149,162     (73,015     601         (72,414

Total other comprehensive loss

     (69,478     —         (69,478     (42,149     —          (42,149
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Equity, end of period

$ 1,875,824    $ 4,746    $ 1,880,570    $ 2,076,767    $ 4,671    $ 2,081,438   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

16


Table of Contents

(10) Business Combinations

Acquisitions are accounted for using the acquisition method and the acquired companies’ results have been included in the accompanying consolidated financial statements from their respective dates of acquisition. During the three and nine months ended September 30, 2014, we expensed acquisition-related costs of $0.3 million and $0.7 million, respectively, in general and administrative expense. During the three and nine months ended September 30, 2013, we expensed acquisition-related costs of $0.5 million and $1.8 million, respectively, in general and administrative expense.

Our business acquisitions have historically been made at prices above the fair value of the assets acquired and liabilities assumed, resulting in goodwill, based on our expectations of synergies and other benefits of combining the businesses. These synergies and benefits include elimination of redundant facilities, functions and staffing; use of our existing commercial infrastructure to expand sales of the products of the acquired businesses; and use of the commercial infrastructure of the acquired businesses to expand product sales in a cost-efficient manner.

Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. The estimated useful lives of the individual categories of intangible assets were based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the shorter of the respective lives of the agreement or the period of time the intangible assets are expected to contribute to future cash flows. We amortize our finite-lived intangible assets based on patterns on which the respective economic benefits are expected to be realized.

Acquisitions in 2013

(i) Epocal

On February 1, 2013, we acquired Epocal, Inc., or Epocal, located in Ottawa, Canada, a provider of technologies that support blood gas and electrolyte testing at the point of care. The aggregate purchase price was approximately $248.5 million, which consisted of $151.4 million in cash, a $22.1 million settlement of a pre-existing arrangement and a contingent consideration obligation with an aggregate acquisition date fair value of $75.0 million. The operating results of Epocal are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes.

(ii) Other acquisitions in 2013

During the year ended December 31, 2013, we acquired the following businesses for an aggregate purchase price of $57.6 million, which included cash payments totaling $28.2 million, a $17.5 million settlement of a pre-existing arrangement, contingent consideration obligations with an aggregate acquisition date fair value of $1.3 million, deferred purchase price consideration with an acquisition date fair value of $0.8 million and an $8.0 million bargain purchase gain.

 

    certain assets of PT Mega Medika Mandiri, or Mega Medika, located in South Jakarta, Indonesia, a distributor of infectious disease products to the Indonesian marketplace as well as materials for vaccines to a pharmaceutical customer (Acquired January 2013)

 

    Discount Diabetic, LLC, or Discount Diabetic, located in Phoenix, Arizona, a provider of blood glucose monitoring products, including diabetes testing systems and test strips and other products (Acquired April 2013)

 

    the Medicare fee-for-service assets of Liberty Medical, or the Liberty business, located in Port St. Lucie, Florida, a leading mail order provider of diabetes testing supplies serving the needs of both Type 1 and Type 2 diabetic patients (Acquired April 2013)

 

    51% share in Cardio Selfcare B.V., subsequently renamed Alere Health Services B.V., or Alere Health Services, located in Ede, the Netherlands, a developer of innovative software for the healthcare industry that develops and licenses software and sells medical devices to enable patients to perform medical self-care, including thrombosis self-care (Acquired May 2013)

 

    74.9% interest in Pantech Proprietary Limited, or Pantech, located in Durban, South Africa, a supplier of rapid diagnostic test kits, including HIV, malaria, syphilis, drugs of abuse, 10 parameter urine sticks, glucometers and glucose sticks (Acquired July 2013)

 

    Certain assets of Simplex Healthcare, Inc. and its subsidiaries, or Simplex, located in Tennessee, a provider of home delivery of diabetes-related medical supplies and products (Acquired November 2013)

 

17


Table of Contents

The operating results of Mega Medika, Discount Diabetic, the Liberty business, Alere Health Services, Pantech, and Simplex are included in our professional diagnostics reporting unit and business segment.

Our consolidated statement of operations for the three and nine months ended September 30, 2014 included revenue totaling approximately $5.8 million and $41.2 million, respectively, related to these businesses. Goodwill has been recognized in the Mega Medika, Alere Health Services, Pantech, and Simplex acquisitions and amounted to approximately $2.4 million. The goodwill related to the Mega Medika and Simplex acquisitions is deductible for tax purposes, but the goodwill related to the Pantech and Alere Health Services acquisitions is not.

With respect to our acquisition of the Liberty business, the purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a bargain purchase gain. The $8.0 million bargain purchase gain has been recorded in other income (expense), net in our Consolidated Statement of Operations and is not recognized for tax purposes. The bargain purchase gain resulted from our operating cost structure which we believe will allow us to operate this business more cost effectively than the sellers.

A summary of the fair values of the net assets acquired for the acquisitions consummated in 2013 is as follows (in thousands):

 

     Epocal      Other      Total  

Current assets(1)

   $ 12,535       $ 13,623       $ 26,158   

Property, plant and equipment

     1,267         1,731         2,998   

Goodwill

     100,419         2,447         102,866   

Intangible assets

     164,400         51,180         215,580   

Other non-current assets

     18,158         29         18,187   
  

 

 

    

 

 

    

 

 

 

Total assets acquired

  296,779      69,010      365,789   
  

 

 

    

 

 

    

 

 

 

Current liabilities

  2,701      5,398      8,099   

Non-current liabilities

  45,542      6,062      51,604   
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

  48,243      11,460      59,703   
  

 

 

    

 

 

    

 

 

 

Net assets acquired

  248,536      57,550      306,086   

Less:

Contingent consideration

  75,000      1,264      76,264   

Settlement of pre-existing arrangements

  22,088      17,500      39,588   

Non-controlling interest

  —       1,774      1,774   

Bargain purchase gain

  —       8,023      8,023   

Deferred purchase price consideration

  —       768      768   
  

 

 

    

 

 

    

 

 

 

Cash paid

$ 151,448    $ 28,221    $ 179,669   
  

 

 

    

 

 

    

 

 

 

 

(1)  Includes approximately $3.3 million of acquired cash.

The following are the intangible assets acquired in 2013 and their respective fair values and weighted-average useful lives (dollars in thousands):

 

     Epocal      Other      Total      Weighted-
average
Useful Life
 

Core technology and patents

   $ 119,700       $ —        $ 119,700         20.0 years   

Software

     —          2,154         2,154         5.7 years   

Trademarks and trade names

     20,500         80         20,580         19.1 years   

License agreements

     —          620         620         1.5 years   

Customer relationships

     —          42,510         42,510         11.5 years   

Other

     —          5,816         5,816         3.0 years   

In-process research and development

     24,200         —          24,200         N/A   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

$ 164,400    $ 51,180    $ 215,580   
  

 

 

    

 

 

    

 

 

    

 

18


Table of Contents

(11) Restructuring Plans

The following table sets forth aggregate restructuring charges recorded in our Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

Statement of Operations Caption

   2014      2013      2014      2013  

Cost of net revenue

   $ 5,654       $ 3,422       $ 6,707       $ 3,881   

Research and development

     5,457         1,100         8,488         1,745   

Sales and marketing

     1,019         218         7,420         901   

General and administrative

     5,167         1,337         14,460         3,698   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

  17,297      6,077      37,075      10,225   

Interest expense, including amortization of original issue discounts and deferred financing costs

  9      14      32      45   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

$ 17,306    $ 6,091    $ 37,107    $ 10,270   
  

 

 

    

 

 

    

 

 

    

 

 

 

(a) 2014 Restructuring Plans

In 2014, management developed world-wide cost reduction efforts to reduce costs and improve operational efficiencies within our professional diagnostics, patient self-testing and corporate and other business segments, primarily impacting our U.S. sales force, our global information technology group, our global research and development group and certain businesses in Europe and Asia. The following table summarizes the restructuring activities related to our 2014 restructuring plans for the three and nine months ended September 30, 2014 (in thousands):

 

     Three Months Ended September 30, 2014  
     Professional
Diagnostics
     Patient Self-testing      Corporate
and Other
     Total  

Severance-related costs

   $ 5,833       $ (6    $ 199       $ 6,026   

Facility and transition costs

     1,713         —          2,979         4,692   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

  7,546      (6   3,178      10,718   

Fixed asset and inventory impairments

  6,322      —        —       6,322   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

$ 13,868    $ (6 $ 3,178    $ 17,040   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2014  
     Professional
Diagnostics
     Patient Self-testing      Corporate
and Other
     Total  

Severance-related costs

   $ 17,748       $ 175       $ 2,399       $ 20,322   

Facility and transition costs

     1,894         —          4,929         6,823   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

  19,642      175      7,328      27,145   

Fixed asset and inventory impairments

  8,402      —        —       8,402   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

$ 28,044    $ 175    $ 7,328    $ 35,547   
  

 

 

    

 

 

    

 

 

    

 

 

 

We anticipate incurring approximately $5.2 million and $6.0 million in additional costs under our 2014 restructuring plans related to our professional diagnostics and corporate and other business segments, respectively, primarily in the U.S. and Europe. We do not anticipate incurring additional costs under our existing 2014 restructuring plan relating to our patient self-testing segment. We may develop additional plans over the remainder of 2014. As of September 30, 2014, $7.7 million in severance and transition costs arising under our 2014 restructuring plans remain unpaid.

 

19


Table of Contents

(b) 2013 Restructuring Plans

In 2013, management developed cost reduction efforts within our professional diagnostics business segment, impacting businesses in our U.S., Europe and Asia Pacific regions. Additionally, management took steps to improve efficiencies within our patient self-testing business segment, including winding down a small portion of this business, which resulted in charges associated with the impairment of related fixed and intangible assets. The following tables summarize the restructuring activities in our professional diagnostics and patient self-testing business segments related to our 2013 restructuring plans for the three and nine months ended September 30, 2014 and 2013 and since inception (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
     Since  

Professional Diagnostics

   2014      2013      2014      2013      Inception  

Severance-related costs

   $ 55       $ 3,876       $ 893       $ 5,960       $ 8,019   

Facility and transition costs

     96         1,107         312         1,457         2,893   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

  151      4,983      1,205      7,417      10,912   

Fixed asset and inventory impairments

  —       470      —       470      743   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

$ 151    $ 5,453    $ 1,205    $ 7,887    $ 11,655   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
     Since  

Patient Self-testing

   2014      2013      2014      2013      Inception  

Severance-related costs

   $ —        $ 30       $ —         $ 88       $ 88   

Facility and transition costs

     —          —           —           241         241   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

  —       30      —        329      329   

Fixed asset and inventory impairments

  —       —       —       26      800   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

$ —      $ 30    $ —      $ 355    $ 1,129   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We anticipate incurring approximately $0.7 million in additional costs under our 2013 restructuring plans related to our professional diagnostics business segment in the United States. We do not anticipate incurring significant additional costs under our 2013 restructuring plans related to our patient self-testing segment. As of September 30, 2014, $0.2 million in severance and facility costs arising under our 2013 restructuring plans remain unpaid.

(c) Restructuring Plans Prior to 2013

The following table summarizes the restructuring activities related to our active 2012, 2011, 2010 and 2008 restructuring plans for the three and nine months ended September 30, 2014 and 2013 and since inception (in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
    Since  

Professional Diagnostics

   2014      2013     2014      2013     Inception  

Severance-related costs (recoveries)

   $ —        $ (568   $ 98       $ (284   $ 24,290   

Facility and transition costs

     106         112        225         524        8,987   

Other exit costs

     10         14        33         45        789   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Cash charges (recoveries)

  116      (442   356      285      34,066   

Fixed asset and inventory impairments

  —       350      —       350      6,922   

Intangible asset impairments

  —       686      —       686      686   

Other non-cash charges

  —       —       —       —       64   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total charges

$ 116    $ 594    $ 356    $ 1,321    $ 41,738   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

20


Table of Contents
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
     Since  

Patient Self-testing

   2014      2013      2014      2013      Inception  

Severance-related costs

   $ —        $ 14       $ —        $ 707       $ 1,422   

Facility and transition costs (recoveries)

     —          —          —           —           —     

Other exit costs

     —          —          —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges (recoveries)

  —       14      —        707      1,422   

Fixed asset and inventory impairments

  —       —       —       —        —     

Intangible asset impairments

  —       —       —       —       —     

Other non-cash recoveries

  —       —       —       —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges (recoveries)

$ —     $ 14    $ —      $ 707    $ 1,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2014, $0.8 million in cash charges remain unpaid, primarily related to facility lease obligations, which are anticipated to continue through 2017.

(d) Restructuring Reserves

The following table summarizes our restructuring reserves related to the plans described above, of which $8.1 million is included in accrued expenses and other current liabilities and $0.7 million is included in other long-term liabilities on our accompanying Consolidated Balance Sheets (in thousands):

 

     Severance-
related
Costs
     Facility and
Transition
Costs
     Other Exit
Costs
     Total  

Balance, December 31, 2013

   $ 992       $ 1,781       $ 367       $ 3,140   

Cash charges

     21,313         7,360         32         28,705   

Payments

     (18,400      (4,146      (86      (22,632

Currency adjustments

     (401      (61      (1      (463
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, September 30, 2014

$ 3,504    $ 4,934    $ 312    $ 8,750   
  

 

 

    

 

 

    

 

 

    

 

 

 

(12) Long-term Debt

We had the following long-term debt balances outstanding (in thousands):

 

     September 30, 2014      December 31, 2013  

A term loans(1) (2)

   $ 797,500       $ 832,188   

B term loans(1) (3)

     1,334,165         1,344,238   

Revolving line of credit(1)

     170,000         170,000   

7.25% Senior notes

     450,000         450,000   

6.5% Senior subordinated notes

     425,000         425,000   

8.625% Senior subordinated notes

     400,000         400,000   

3% Convertible senior subordinated notes

     150,000         150,000   

Other lines of credit

     728         355   

Other

     44,092         50,119   
  

 

 

    

 

 

 
  3,771,485      3,821,900   

Less: Short-term debt and current portion

  (87,871   (64,112
  

 

 

    

 

 

 
$ 3,683,614    $ 3,757,788   
  

 

 

    

 

 

 

 

(1)  Incurred under our secured credit facility.

 

21


Table of Contents
(2)  Includes “A” term loans and “Delayed Draw” term loans under our secured credit facility.
(3)  Includes term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans under our secured credit facility, which term loans have been converted into and consolidated with the “B” term loans under our secured credit facility.

In connection with our significant long-term debt issuances, we recorded interest expense, including amortization and write-offs of deferred financing costs and original issue discounts, in our Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2014 and 2013, respectively, as follows (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014      2013      2014      2013  

Secured credit facility (1)

   $ 24,985       $ 25,809       $ 74,606       $ 78,741   

7.25% Senior notes

     8,525         8,535         25,574         25,371   

7.875% Senior notes (2)

     —          —          —          137   

6.5% Senior subordinated notes

     7,180         7,172         21,534         10,185   

9% Senior subordinated notes (3)

     —          —          —          54,043   

8.625% Senior subordinated notes

     9,271         9,273         27,819         27,820   

3% Senior subordinated convertible notes

     1,246         1,246         3,738         3,738   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 51,207    $ 52,035    $ 153,271    $ 200,035   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes “A” term loans, including the “Delayed-Draw” term loans; “B” term loans, including the term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans, which term loans have been converted into and consolidated with the “B” term loans; and revolving line of credit loans. For the three-month and nine-month periods ended September 30, 2014, the amounts include $0.4 million and $1.1 million, respectively, related to the amortization of fees paid for certain debt modifications. For the three-month and nine-month periods ended September 30, 2013, the amount includes $0.4 million and $2.2 million, respectively, related to the amortization of fees paid for certain debt modifications.
(2)  For the nine months ended September 30, 2013, this amount includes an approximate $0.1 million loss recorded in connection with the repurchase of our 7.875% senior notes.
(3)  An approximate $35.6 million loss in connection with the repurchase of our 9% senior subordinated notes has been included in the nine-month period ended September 30, 2013. Included in the $35.6 million is $19.0 million related to tender offer consideration and call premium which has been classified within cash flows from financing activities in our Consolidated Statement of Cash Flows.

(13) Fair Value Measurements

We apply fair value measurement accounting to value our financial assets and liabilities. Fair value measurement accounting provides a framework for measuring fair value under U.S. GAAP and requires expanded disclosures regarding fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Described below are the three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

22


Table of Contents

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

Description

   September 30, 2014      Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 794       $ 794       $ —        $  —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

$ 794    $ 794    $  —     $  —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

Contingent consideration obligations (1)

$ 155,000    $  —     $  —     $ 155,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

$ 155,000    $  —     $  —     $ 155,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Description

   December 31, 2013      Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 858       $ 858       $ —        $  —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

$ 858    $ 858    $ —     $  —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

Contingent consideration obligations (1)

$ 218,569    $  —     $ —     $ 218,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

$ 218,569    $  —     $ —     $ 218,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  We determine the fair value of the contingent consideration obligations based on a probability-weighted approach derived from earn-out criteria estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The measurement is based upon significant inputs not observable in the market. Significant increases or decreases in any of these inputs could result in a significantly higher or lower fair value measurement. Changes in the fair value of these contingent consideration obligations are recorded as income or expense within operating income in our Consolidated Statements of Operations. See Note 18 for additional information on the valuation of our contingent consideration obligations.

Changes in the fair value of our Level 3 contingent consideration obligations during the nine months ended September 30, 2014 were as follows (in thousands):

 

Fair value of contingent consideration obligations, December 31, 2013

$ 218,569   

Payments

  (49,573

Present value accretion and adjustments

  12,442   

Reversal of Method Factory Inc., now known as Alere Accountable Care Solutions, LLC (“ACS”) obligation(1)

  (26,321

Foreign currency adjustments

  (117
  

 

 

 

Fair value of contingent consideration obligations, September 30, 2014

$ 155,000   
  

 

 

 

 

(1)  ACS was divested in October 2014 and, in connection with this transaction, the contingent consideration obligation was terminated. See Note 3.

At September 30, 2014 and December 31, 2013, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable and other current liabilities approximated their estimated fair values.

The carrying amount and estimated fair value of our long-term debt were both $3.8 billion at September 30, 2014. The carrying amount and estimated fair value of our long-term debt were $3.8 billion and $3.9 billion, respectively, at December 31, 2013. The estimated fair value of our long-term debt was determined using market sources that were derived from available market information (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future.

 

23


Table of Contents

(14) Defined Benefit Pension Plan

Our subsidiary in England, Unipath Ltd., has a defined benefit pension plan established for certain of its employees. The net periodic benefit costs are as follows (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2014      2013      2014     2013  

Service cost

   $ —        $ —        $ —       $ —    

Interest cost

     202         182         604        543   

Expected return on plan assets

     (191      (156      (571     (465

Amortization of prior service costs

     111         103         333        308   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net periodic benefit cost

$ 122    $ 129    $ 366    $ 386   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

24


Table of Contents

(15) Financial Information by Segment

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are professional diagnostics, patient self-testing, consumer diagnostics and corporate and other. Our operating results include license and royalty revenue which are allocated to professional diagnostics and consumer diagnostics on the basis of the original license or royalty agreement. We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three and nine months ended September 30, 2014 and 2013 and as of September 30, 2014 and December 31, 2013 is as follows (in thousands):

 

     Professional
Diagnostics
     Patient
Self-

testing
    Consumer
Diagnostics
     Corporate
and Other
    Total  

Three Months ended September 30, 2014 (Restated)

            

Net revenue

   $ 587,716       $ 35,045      $ 26,449       $ —        $ 649,210   

Operating income (loss)

   $ 58,549       $ 6,437      $ 3,742       $ (33,386   $ 35,342   

Depreciation and amortization

   $ 75,625       $ 4,741      $ 841       $ 1,917      $ 83,124   

Restructuring charge

   $ 14,124       $ (5   $ —         $ 3,178      $ 17,297   

Stock-based compensation

   $ —         $ —        $ —         $ 3,169      $ 3,169   

Three Months ended September 30, 2013

            

Net revenue

   $ 590,197       $ 31,603      $ 28,848       $ —        $ 650,648   

Operating income (loss)

   $ 52,585       $ (4,141   $ 3,347       $ (29,033   $ 22,758   

Depreciation and amortization

   $ 88,835       $ 5,770      $ 1,063       $ 287      $ 95,955   

Non-cash inventory charge

   $ 708       $ (59   $ —         $ —        $ 649   

Restructuring charge

   $ 6,033       $ 44      $ —         $ —        $ 6,077   

Stock-based compensation

   $ —         $ —        $ —         $ 5,662      $ 5,662   

Loss on disposition

   $ 5,885       $ —        $ —         $ —        $ 5,885   

Nine Months ended September 30, 2014 (Restated)

            

Net revenue

   $ 1,737,871       $ 102,361      $ 81,615       $ —        $ 1,921,847   

Operating income (loss)

   $ 126,824       $ 2,622      $ 10,617       $ (75,474   $ 64,589   

Depreciation and amortization

   $ 230,219       $ 14,479      $ 2,604       $ 3,461      $ 250,763   

Restructuring charge

   $ 29,572       $ 175      $ —         $ 7,328      $ 37,075   

Stock-based compensation

   $ —         $ —        $ —         $ 7,751      $ 7,751   

Loss on disposition

   $ 638       $ —        $ —         $ —        $ 638   

Nine Months ended September 30, 2013

            

Net revenue

   $ 1,774,824       $ 92,806      $ 76,846       $ —        $ 1,944,476   

Operating income (loss)

   $ 183,694       $ (14,201   $ 9,031       $ (66,907   $ 111,617   

Depreciation and amortization

   $ 258,485       $ 16,846      $ 3,296       $ 846      $ 279,473   

Non-cash inventory charge

   $ 1,880       $ —        $ —         $ —        $ 1,880   

Restructuring charge

   $ 9,162       $ 985      $ —         $ —        $ 10,147   

Stock-based compensation

   $ —         $ —        $ —         $ 14,462      $ 14,462   

Loss on disposition

   $ 5,885       $ —        $ —         $ —        $ 5,885   

Assets:

            

As of September 30, 2014 (Restated)

   $ 6,016,792       $ 484,334      $ 215,802       $ 87,192      $ 6,804,120   

As of December 31, 2013

   $ 5,746,021       $ 501,672      $ 197,458       $ 616,934      $ 7,062,085   

 

25


Table of Contents

The following tables summarize our net revenue from the professional diagnostics and patient self-testing reporting segments by groups of similar products and services for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

Professional Diagnostics Segment    Three Months Ended September 30,      Nine Months Ended September 30,  
     2014
(Restated)
     2013      2014
(Restated)
     2013  

Infectious disease

   $ 177,955       $ 172,739       $ 507,866       $ 520,289   

Toxicology

     161,940         166,536         478,514         479,986   

Cardiology

     109,661         115,677         333,077         348,902   

Diabetes

     49,477         53,150         151,425         178,138   

Other

     84,501         78,607         252,303         235,992   
  

 

 

    

 

 

    

 

 

    

 

 

 

Professional diagnostics net product sales and services revenue

$ 583,534    $ 586,709    $ 1,723,185    $ 1,763,307   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended September 30,      Nine Months Ended September 30,  
Patient Self-testing Segment    2014      2013      2014      2013  

Patient Self-testing services

   $ 30,185       $ 27,025       $ 86,799       $ 77,437   

Other

     4,860         4,578         15,562         15,369   
  

 

 

    

 

 

    

 

 

    

 

 

 

Patient self-testing net product sales and services revenue

$ 35,045    $ 31,603    $ 102,361    $ 92,806   
  

 

 

    

 

 

    

 

 

    

 

 

 

(16) Related Party Transactions

(a) Divestiture of ACS Companies

On October 10, 2014, we completed the sale of our ACS subsidiary to ACS Acquisition, LLC (the “Purchaser”), pursuant to the terms of a Membership Interest Purchase Agreement with the Purchaser and Sumit Nagpal. In connection with the sale of ACS, we also agreed to sell our subsidiary Wellogic ME FZ – LLC (“Wellogic,” together with ACS, the “ACS Companies”) to the Purchaser, subject to the satisfaction of routine requirements of Dubai law relating to the transfer of equity. See Note 3.

Mr. Nagpal is a director of Wellogic and served as the chief executive officer and a director of ACS until his resignation on September 2, 2014. Mr. Nagpal was also the owner of Method Factory, Inc., the company that sold to Alere in 2011 the business and assets of ACS, and Wellogic prior to its sale to Alere in 2012.

(b) SPD Joint Venture

In May 2007, we completed the formation of Swiss Precision Diagnostics GmbH, or SPD, our 50/50 joint venture with Procter & Gamble, or P&G, for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form the joint venture, we ceased to consolidate the operating results of our consumer diagnostic products business related to the joint venture and instead account for our 50% interest in the results of the joint venture under the equity method of accounting.

We had a net payable to SPD of $4.1 million as of September 30, 2014 and a net receivable from SPD of $2.1 million as of December 31, 2013. Included in the $4.1 million payable balance as of September 30, 2014 is a receivable of approximately $1.6 million for costs incurred in connection with our 2008 SPD-related restructuring plans. Included in the $2.1 million receivable balance as of December 31, 2013 is approximately $1.8 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $11.4 million and $13.2 million as of September 30, 2014 and December 31, 2013, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the formation of the joint venture was completed have been classified as other receivables within prepaid and other current assets on our Consolidated Balance Sheets in the amount of $9.1 million and $12.4 million as of September 30, 2014 and December 31, 2013, respectively. In connection with the joint venture arrangement, the joint venture bears the collection risk associated with these receivables. Sales to the joint venture under our manufacturing agreement totaled $19.6 million and $60.8 million during the three and nine months ended September 30, 2014, respectively, and $21.2 million and $56.5 million during the three and nine months ended September 30, 2013, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $1.0 million during the three and nine months ended September 30, 2014, respectively, and $0.3 million and $0.9 million during the three and nine months ended September 30, 2013, respectively. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our Consolidated Statements of Operations.

 

26


Table of Contents

Under the terms of our product supply agreement, SPD purchases products from our manufacturing facilities in China. SPD in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, a portion of the tests are sold to P&G for distribution to third-party customers in North America. As a result of these related transactions, we have recorded $9.1 million and $9.4 million of trade receivables which are included in accounts receivable on our Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, respectively, and $25.8 million and $18.8 million of trade accounts payable which are included in accounts payable on our Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, respectively. During the nine months ended September 30, 2013, we received $10.8 million in cash from SPD as a return of capital.

The following table summarizes our related party balances with SPD within our Consolidated Balance Sheets (in thousands):

 

Balance Sheet Caption

   September 30, 2014      December 31, 2013  

Accounts receivable, net of allowances

   $ 9,119       $ 11,510   

Prepaid expenses and other current assets

   $ 9,133       $ 12,417   

Deferred financing costs, net, and other non-current assets

   $ 11,369       $ 13,249   

Accounts payable

   $ 29,841       $ 18,811   

(c) Entrustment Loan Arrangement with SPD Shanghai

Alere (Shanghai) Diagnostics Co., Ltd., or Alere Shanghai, and SPD Trading (Shanghai) Co., Ltd., or SPD Shanghai, entered into an entrustment loan arrangement for a maximum of CNY 23 million (approximately $3.7 million at September 30, 2014), in order to finance the latter’s short-term working capital needs, with the Royal Bank of Scotland (China) Co., Ltd. Shanghai Branch, or RBS. The agreement governs the setting up of an Entrustment Loan Account with RBS, into which Alere Shanghai deposits certain monies. This restricted cash account provides a guarantee to RBS of amounts borrowed from RBS by SPD Shanghai. The Alere Shanghai RBS account is recorded as restricted cash on Alere Shanghai’s balance sheet and amounted to $1.7 million at September 30, 2014.

(17) Other Arrangements

On February 19, 2013, we entered into an agreement with the Bill and Melinda Gates Foundation, or the Gates Foundation, whereby we were awarded a grant by the Gates Foundation in the amount of $21.6 million to support the development and commercialization of a validated, low-cost, nucleic-acid assay for clinical Tuberculosis, or TB, detection and drug-resistance test cartridges and adaptation of an analyzer platform capable of operation in rudimentary laboratories in low-resource settings. In connection with this agreement, we also entered into a loan agreement with the Gates Foundation, or the Gates Loan Agreement, which provides for the making of subordinated term loans by the Gates Foundation to us from time to time, subject to the achievement of certain milestones, in an aggregate principal amount of up to $20.6 million. Funding under the Gates Loan Agreement will be used in connection with the purchase of equipment for an automated high-throughput manufacturing line and other uses as necessary for the manufacture of the TB and HIV-related products. All loans under the Gates Loan Agreement are evidenced by promissory notes that we have executed and delivered to the Gates Foundation, bear interest at the rate of 3% per annum and, except to the extent earlier repaid by us, mature and are required to be repaid in full on December 31, 2019. As of September 30, 2014, we had borrowed no amounts under the Gates Loan Agreement. As of September 30, 2014, we had received approximately $11.6 million in grant-related funding from the Gates Foundation, which was recorded as restricted cash and deferred grant funding. The deferred grant funding is classified within accrued expenses and other current liabilities on our Consolidated Balance Sheet. As qualified expenditures are incurred under the terms of the grant, we use the deferred funding to recognize a reduction of our related qualified research and development expenditures. For the three and nine months ended September 30, 2014, we incurred $2.5 million and $7.0 million, respectively, and for the three and nine months ended September 30, 2013, we incurred $1.9 million and $4.3 million, respectively, of qualified expenditures, for which we reduced our deferred grant funding balance and recorded an offset to our research and development expenses.

 

27


Table of Contents

(18) Commitments and Contingencies

Acquisition-related Contingent Consideration Obligations

We have contractual contingent purchase price consideration obligations related to certain of our acquisitions. We determine the acquisition date fair value of the contingent consideration obligations based on a probability-weighted approach derived from the overall likelihood of achieving certain performance targets, including product development milestones or financial metrics. 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 payments are discounted using a discount rate based upon the weighted-average cost of capital. At each reporting date, we revalue the contingent consideration obligations to the reporting date fair values and record increases and decreases in the fair values as income or expense in our Consolidated Statements of Operations.

Increases or decreases in the fair values of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of earn-out criteria and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

The following table summarizes our contractual contingent purchase price consideration obligations related to certain of our acquisitions, as follows (in thousands):

 

Acquisition

   Acquisition Date      Acquisition
Date Fair
Value
     Maximum
Remaining
Earn-out
Potential
as of
September 30,
2014
    Remaining
Earn-out
Period as
of
September 30,
2014
  Estimated
Fair Value as
of
September 30,
2014
     Estimated
Fair Value as
of
December 31,
2013
     Payments
Made
During
2014
 

TwistDx, Inc.(1)

     March 11, 2010       $ 35,600       $ 108,777      2014 – 2025(10)   $ 39,900       $ 45,502       $ 15,250   

Ionian Technologies, Inc.(2)

     July 12, 2010       $ 24,500       $ 50,000      2014 – 2015     24,700         29,000         7,500   

Laboratory Data Systems, Inc.(3)

     August 29, 2011       $ 13,000       $ —           —          7,400         7,500   

Forensics Limited (ROAR)(4)

     September 22, 2011       $ 5,463       $ 12,600      2014     3,492         2,484         —    

ACS(5)

     December 9, 2011       $ 18,900       $ —   (11)        —          26,900         579   

MedApps(6)

     July 2, 2012       $ 13,100       $ 8,600      2014     6,500         12,800         5,000   

Amedica Biotech, Inc.(7)

     July 3, 2012       $ 8,900       $ —           —          7,500         8,055   

DiagnosisOne, Inc.(8)

     July 31, 2012       $ 22,300       $ 30,000      2014 – 2017     20,400         26,600         3,000   

Epocal(9)

     February 1, 2013       $ 75,000       $ 65,500      2014 – 2018     47,100         47,200         —    

Other

     Various       $ 58,877       $ 20,129      2014 – 2016     12,908         13,183         2,689   
            

 

 

    

 

 

    

 

 

 
$ 155,000    $ 218,569    $ 49,573   
            

 

 

    

 

 

    

 

 

 

 

(1)  The terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets through 2025.
(2)  The terms of the acquisition agreement require us to pay earn-outs upon successfully meeting multiple product development milestones during the five years following the acquisition.
(3)  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 twelve-month periods ending June 30, 2012 and 2013.
(4)  The terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain EBITDA targets during 2012 through 2014.
(5)  The terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational and profit targets during 2012 through 2019. See also (11).
(6)  The terms of the acquisition agreement require us to make earn-out payments upon achievement of certain technological and product development milestones through December 31, 2014.
(7)  The terms of the acquisition agreement require us to make earn-out payments upon successfully meeting certain financial targets during each of the calendar years 2012 and 2013.
(8)  The terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within five years of the acquisition date.
(9)  The terms of the acquisition agreement require us to pay earn-outs and management incentive payments upon successfully meeting certain product development and United States Food and Drug Administration regulatory approval milestones from the date of acquisition through December 31, 2018.
(10)  The maximum earn-out period ends on the fifteenth anniversary of the acquisition date.
(11)  The earn-out was comprised of three components, of which two components had an aggregate maximum remaining earn-out potential of $49.4 million. There was no dollar cap on the third earn-out component, however, the earn-out potential is limited to the remaining earn-out period. ACS was divested in October 2014 and these earn-outs were terminated in connection with the divestiture transaction. See Note 3.

 

28


Table of Contents

(19) Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position, results of operations, comprehensive income or cash flows upon adoption.

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the potential impacts of the new standard on our consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-12, Compensation – Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, or ASU 2014-12. ASU 2014-12 requires that a performance target which affects vesting and which could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. ASU 2014-09 requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. Early adoption is not permitted. We are currently evaluating the impact of the new guidance and the method of adoption in the consolidated financial statements.

In April 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) — Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 requires that only disposals representing a strategic shift in operations which has a major effect on the organization’s operations and financial results, such as a disposal of a major geographic area, a major line of business, or a major equity method investment, should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. ASU 2014-08 is effective in the first quarter of 2015. On October 1, 2014, we early adopted this standard. The impact on our consolidated financial statements will be dependent on any transaction that is within the scope of the new guidance.

Recently Adopted Standards

Effective January 1, 2014, we adopted Accounting Standards Update, or ASU, 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, similar tax loss or a tax credit carryforward exists, with limited exceptions. The adoption of this standard had no material impact on our Consolidated Financial Statements.

(20) Equity Investments

We account for the results from our equity investments under the equity method of accounting in accordance with Accounting Standards Codification, or ASC, 323, Investments — Equity Method and Joint Ventures, based on the percentage of our ownership interest in the business. Our equity investments primarily include the following:

(a) SPD

We recorded earnings of $5.9 million and $12.8 million during the three and nine months ended September 30, 2014, respectively, and earnings of $4.7 million and $11.4 million during the three and nine months ended September 30, 2013, respectively, in equity earnings of unconsolidated entities, net of tax, in our Consolidated Statements of Operations, which represented our 50% share of SPD’s net income for the respective periods.

 

29


Table of Contents

(b) TechLab

We own 49% of TechLab, Inc., or TechLab, a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic-associated diarrhea and parasitology. We recorded earnings of $0.9 million and $1.6 million during the three and nine months ended September 30, 2014, respectively, and earnings of $0.5 million and $1.3 million during the three and nine months ended September 30, 2013, respectively, in equity earnings of unconsolidated entities, net of tax, in our Consolidated Statements of Operations, which represented our minority share of TechLab’s net income for the respective periods.

Summarized financial information for SPD and TechLab on a combined basis is as follows (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  

Combined Condensed Results of Operations:

   2014      2013      2014      2013  

Net revenue

   $ 65,397       $ 49,272       $ 155,533       $ 153,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

$ 40,268    $ 40,158    $ 120,680    $ 112,862   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income after taxes

$ 12,834    $ 10,543    $ 27,992    $ 25,549   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Combined Condensed Balance Sheet:

   September 30, 2014      December 31, 2013  

Current assets

   $ 77,201       $ 63,985   

Non-current assets

     35,912         38,541   
  

 

 

    

 

 

 

Total assets

$ 113,113    $ 102,526   
  

 

 

    

 

 

 

Current liabilities

$ 27,675    $ 38,053   

Non-current liabilities

  6,333      6,175   
  

 

 

    

 

 

 

Total liabilities

$ 34,008    $ 44,228   
  

 

 

    

 

 

 

(21) Loss on Disposition

In April 2014, we sold the Glucostabilizer business of Alere Informatics, Inc., which was part of our professional diagnostics reporting unit and business segment, to Medical Decision Network, LLC, or MDN, for $1.1 million in cash proceeds and a $1.5 million note receivable, which we fully reserved for based on our assessment of collectability. As a result of this transaction, we recorded a loss on disposition of $0.6 million during the nine months ended September 30, 2014. The financial results for the Glucostabilizer business are immaterial to our consolidated financial results.

(22) Provision (Benefit) for Income Taxes

During the three and nine months ended September 30, 2014, the provision for income taxes included a provision of $79.4 million to establish a valuation allowance against deferred tax assets associated with our U.S. foreign tax credit carryforwards. This valuation allowance was established as it is more likely than not that these deferred tax assets will not be realized. This decision was based on the weight of all available positive and negative evidence that existed at September 30, 2014.

 

30


Table of Contents

(23) Guarantor Financial Information

Our 7.25% senior notes due 2018, our 8.625% senior subordinated notes due 2018, and our 6.5% senior subordinated notes due 2020 are guaranteed by certain of our consolidated 100% owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, Balance Sheets as of September 30, 2014 and December 31, 2013, the related Statements of Operations, Statements of Comprehensive Income (Loss) for each of the three and nine months ended September 30, 2014 and 2013, respectively, and the Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, respectively, for Alere Inc., the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of Alere Inc. and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

We have extensive transactions and relationships between various members of the consolidated group. These transactions and relationships include intercompany pricing agreements, intellectual property royalty agreements and general and administrative and research and development cost-sharing agreements. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

For comparative purposes, certain amounts for prior periods have been reclassified to conform to the current period classification.

 

31


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries

(Restated)
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated
(Restated)
 

Net product sales

   $ —        $ 214,585      $ 353,817      $ (60,777   $ 507,625   

Services revenue

     —          122,045        15,358        —          137,403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

  —        336,630      369,175      (60,777   645,028   

License and royalty revenue

  —        2,993      3,663      (2,474   4,182   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

  —        339,623      372,838      (63,251   649,210   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

  912      118,241      204,983      (52,886   271,250   

Cost of services revenue

  71      74,441      8,448      (7,858   75,102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

  983      192,682      213,431      (60,744   346,352   

Cost of license and royalty revenue

  28      55      3,627      (2,474   1,236   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

  1,011      192,737      217,058      (63,218   347,588   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

  (1,011   146,886      155,780      (33   301,622   

Operating expenses:

Research and development

  7,256      15,318      16,152      —        38,726   

Sales and marketing

  1,265      54,422      67,073      —        122,760   

General and administrative

  33,549      30,323      40,922      —        104,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  (43,081   46,823      31,633      (33   35,342   

Interest expense, including amortization of original issue discounts and deferred financing costs

  (51,589   (4,420   (4,512   8,189      (52,332

Other income (expense), net

  4,706      4,835      (9,438   (8,190   (8,087
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for income taxes

  (89,964   47,238      17,683      (34   (25,077

Provision for income taxes

  42,727      13,657      9,140      (35   65,489   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before equity in earnings of subsidiaries and unconsolidated entities, net of tax

  (132,691   33,581      8,543      1      (90,566

Equity in earnings of subsidiaries, net of tax

  49,642      210      —        (49,852   —     

Equity earnings of unconsolidated entities, net of tax

  560      —        5,779      (62   6,277   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  (82,489   33,791      14,322      (49,913   (84,289

Income (loss) from discontinued operations, net of tax

  (16,201   (20,615   22,415      —        (14,401
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  (98,690   13,176      36,737      (49,913   (98,690

Less: Net loss attributable to non-controlling interests

  —        —        (306   —        (306
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Alere Inc. and Subsidiaries

  (98,690   13,176      37,043      (49,913   (98,384

Preferred stock dividends

  (5,367   —        —        —        (5,367
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

$ (104,057 $ 13,176    $ 37,043    $ (49,913 $ (103,751
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 220,530      $ 329,405      $ (44,339   $ 505,596   

Services revenue

     —          121,223        19,645        —          140,868   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

  —        341,753      349,050      (44,339   646,464   

License and royalty revenue

  —        5,103      4,057      (4,976   4,184   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

  —        346,856      353,107      (49,315   650,648   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

  887      126,983      165,914      (37,472   256,312   

Cost of services revenue

  —        68,133      8,750      (5,051   71,832   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

  887      195,116      174,664      (42,523   328,144   

Cost of license and royalty revenue

  —        17      6,967      (4,975   2,009   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

  887      195,133      181,631      (47,498   330,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

  (887   151,723      171,476      (1,817   320,495   

Operating expenses:

Research and development

  5,515      17,009      17,954      —        40,478   

Sales and marketing

  1,579      64,536      75,633      —        141,748   

General and administrative

  23,028      31,894      54,704      —        109,626   

Loss on disposition

  —        (1   5,886      —        5,885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  (31,009   38,285      17,299      (1,817   22,758   

Interest expense, including amortization of original issue discounts and deferred financing costs

  (52,318   (6,207   (2,721   7,945      (53,301

Other income (expense), net

  (6,775   6,234      1,418      (7,945   (7,068
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision (benefit) for income taxes

  (90,102   38,312      15,996      (1,817   (37,611

Provision (benefit) for income taxes

  (28,111   13,557      412      (560   (14,702
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before in equity earnings (losses) of subsidiaries and unconsolidated entities, net of tax

  (61,991   24,755      15,584      (1,257   (22,909

Equity in earnings (losses) of subsidiaries, net of tax

  42,907      (337   —        (42,570   —     

Equity earnings of unconsolidated entities, net of tax

  464      —        5,217      72      5,753   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  (18,620   24,418      20,801      (43,755   (17,156

Loss from discontinued operations, net of tax

  (452   (926   (538   —        (1,916
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  (19,072   23,492      20,263      (43,755   (19,072

Less: Net income attributable to non-controlling interests

  —        —        359      —        359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Alere Inc. and Subsidiaries

  (19,072   23,492      19,904      (43,755   (19,431

Preferred stock dividends

  (5,367   —        —        —        (5,367
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

$ (24,439 $ 23,492    $ 19,904    $ (43,755 $ (24,798
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2014

(in thousands)

 

     Issuer
(Restated)
    Guarantor
Subsidiaries

(Restated)
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated
(Restated)
 

Net product sales

   $ —        $ 623,208      $ 1,048,212      $ (172,118   $ 1,499,302   

Services revenue

     —          355,132        51,415        —          406,547   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

  —        978,340      1,099,627      (172,118   1,905,849   

License and royalty revenue

  —        10,312      14,683      (8,997   15,998   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

  —        988,652      1,114,310      (181,115   1,921,847   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

  2,291      348,701      591,778      (156,852   785,918   

Cost of services revenue

  214      216,142      25,123      (20,123   221,356   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

  2,505      564,843      616,901      (176,975   1,007,274   

Cost of license and royalty revenue

  28      194      12,675      (8,997   3,900   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

  2,533      565,037      629,576      (185,972   1,011,174   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

  (2,533   423,615      484,734      4,857      910,673   

Operating expenses:

Research and development

  20,034      45,753      49,068      —        114,855   

Sales and marketing

  6,329      175,536      209,740      —        391,605   

General and administrative

  78,257      112,850      147,879      —        338,986   

Loss on disposition

  —        638      —        —        638   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  (107,153   88,838      78,047      4,857      64,589   

Interest expense, including amortization of original issue discounts and deferred financing costs

  (154,232   (14,933   (13,646   26,535      (156,276

Other income (expense), net

  11,823      15,867      1,068      (26,594   2,164   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision (benefit) for income taxes

  (249,562   89,772      65,469      4,798      (89,523

Provision (benefit) for income taxes

  (2,566   42,896      27,319      1,624      69,273   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before equity in earnings of subsidiaries and unconsolidated entities, net of tax

  (246,996   46,876      38,150      3,174      (158,796

Equity in earnings of subsidiaries, net of tax

  97,307      442      —        (97,749   —     

Equity earnings of unconsolidated entities, net of tax

  1,387      —        12,516      (187   13,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  (148,302   47,318      50,666      (94,762   (145,080

Income (loss) from discontinued operations, net of tax

  (860   (26,418   23,196      —        (4,082
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  (149,162   20,900      73,862      (94,762   (149,162

Less: Net loss attributable to non-controlling interests

  —        —        (136   —        (136
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Alere Inc. and Subsidiaries

  (149,162   20,900      73,998      (94,762   (149,026

Preferred stock dividends

  (15,926   —        —        —        (15,926
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

$ (165,088 $ 20,900    $ 73,998    $ (94,762 $ (164,952
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 655,530      $ 1,014,898      $ (142,696   $ 1,527,732   

Services revenue

     —          345,909        57,722        —          403,631   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

  —        1,001,439      1,072,620      (142,696   1,931,363   

License and royalty revenue

  —        10,908      12,662      (10,457   13,113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

  —        1,012,347      1,085,282      (153,153   1,944,476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

  2,722      360,539      518,776      (125,322   756,715   

Cost of services revenue

  —        193,563      26,146      (13,777   205,932   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

  2,722      554,102      544,922      (139,099   962,647   

Cost of license and royalty revenue

  —        52      15,668      (10,456   5,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

  2,722      554,154      560,590      (149,555   967,911   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

  (2,722   458,193      524,692      (3,598   976,565   

Operating expenses:

Research and development

  16,167      50,550      54,012      —        120,729   

Sales and marketing

  4,384      192,055      223,273      —        419,712   

General and administrative

  51,532      110,732      156,358      —        318,622   

Loss on disposition

  —        (1   5,886      —        5,885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  (74,805   104,857      85,163      (3,598   111,617   

Interest expense, including amortization of original issue discounts and deferred financing costs

  (200,836   (19,510   (9,209   26,502      (203,053

Other income (expense), net

  (7,612   18,676      8,179      (26,502   (7,259
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision (benefit) for income taxes

  (283,253   104,023      84,133      (3,598   (98,695

Provision (benefit) for income taxes

  (101,941   46,309      31,500      (1,240   (25,372
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before equity in earnings (losses) of subsidiaries and unconsolidated entities, net of tax

  (181,312   57,714      52,633      (2,358   (73,323

Equity in earnings (losses) of subsidiaries, net of tax

  108,302      (1,510   —        (106,792   —     

Equity earnings of unconsolidated entities, net of tax

  1,278      —        11,932      28      13,238   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  (71,732   56,204      64,565      (109,122   (60,085

Loss from discontinued operations, net of tax

  (682   (10,029   (1,618   —        (12,329
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  (72,414   46,175      62,947      (109,122   (72,414

Less: Net income attributable to non-controlling interests

  —        —        601      —        601   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Alere Inc. and Subsidiaries

  (72,414   46,175      62,346      (109,122   (73,015

Preferred stock dividends

  (15,926   —        —        —        (15,926
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

$ (88,340 $ 46,175    $ 62,346    $ (109,122 $ (88,941
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended September 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries

(Restated)
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated
(Restated)
 

Net income (loss)

   $ (98,690   $ 13,176      $ 36,737      $ (49,913   $ (98,690
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

Changes in cumulative translation adjustment

  (383   (104   (95,936   (2   (96,425

Unrealized gains on hedging instruments

  —        —        7      —        7   

Minimum pension liability adjustment

  —        —        481      —        481   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

  (383   (104   (95,448   (2   (95,937

Income tax provision (benefit) related to items of other comprehensive loss

  —        —        —        —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

  (383   (104   (95,448   (2   (95,937
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  (99,073   13,072      (58,711   (49,915   (194,627

Less: Comprehensive loss attributable to non-controlling interests

  —        —        (306   —        (306
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries

$ (99,073 $ 13,072    $ (58,405 $ (49,915 $ (194,321
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

36


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended September 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (19,072   $ 23,492       $ 20,263      $ (43,755   $ (19,072
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

Changes in cumulative translation adjustment

  524      —        66,742      2      67,268   

Unrealized gains on hedging instruments

  —        —        20      —        20   

Minimum pension liability adjustment

  —        —        (369   —        (369
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

  524      —        66,393      2      66,919   

Income tax provision (benefit) related to items of other comprehensive loss

  —        —        —        —        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

  524      —        66,393      2      66,919   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  (18,548   23,492      86,656      (43,753   47,847   

Less: Comprehensive income attributable to non-controlling interests

  —        —        359      —        359   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries

$ (18,548 $ 23,492    $ 86,297    $ (43,753 $ 47,488   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2014

(in thousands)

 

     Issuer
(Restated)
    Guarantor
Subsidiaries

(Restated)
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated
(Restated)
 

Net income (loss)

   $ (149,162   $ 20,900      $ 73,862      $ (94,762   $ (149,162
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

Changes in cumulative translation adjustment

  (137   (178   (69,633   (2   (69,950

Unrealized losses on available for sale securities

  —        (17   —        —        (17

Unrealized gains on hedging instruments

  —        —        21      —        21   

Minimum pension liability adjustment

  —        —        468      —        468   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

  (137   (195   (69,144   (2   (69,478

Income tax benefit related to items of other comprehensive loss

  —        —        —        —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

  (137   (195   (69,144   (2   (69,478
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  (149,299   20,705      4,718      (94,764   (218,640

Less: Comprehensive loss attributable to non-controlling interests

  —        —        (136   —        (136
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries

$ (149,299 $ 20,705    $ 4,854    $ (94,764 $ (218,504
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (72,414   $ 46,175       $ 62,947      $ (109,122   $ (72,414
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

Changes in cumulative translation adjustment

  (329   —        (42,188   2      (42,515

Unrealized gains on hedging instruments

  —        —        31      —        31   

Minimum pension liability adjustment

  —        —        335      —        335   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

  (329   —        (41,822   2      (42,149

Income tax benefit related to items of other comprehensive loss

  —        —        —        —        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

  (329   —        (41,822   2      (42,149
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  (72,743   46,175      21,125      (109,120   (114,563

Less: Comprehensive income attributable to non-controlling interests

  —        —        601      —        601   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries

$  (72,743)    $  46,175    $ 20,524    $  (109,120)    $  (115,164
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

39


Table of Contents

CONSOLIDATING BALANCE SHEET

September 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries

(Restated)
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated
(Restated)
 

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 11,469      $ 91,188       $ 328,694       $ —        $ 431,351   

Restricted cash

     1,940        100         33,541         —          35,581   

Marketable securities

     —          793         1         —          794   

Accounts receivable, net of allowances

     —          188,972         275,724         —          464,696   

Inventories, net

     —          170,029         209,486         (19,474     360,041   

Deferred tax assets

     (17,440     10,425         30,648         (2,107     21,526   

Prepaid expenses and other current assets

     8,411        29,117         81,476         4,052        123,056   

Assets held for sale

     —          325,165         16         —          325,181   

Intercompany receivables

     366,149        809,418         59,656         (1,235,223     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

  370,529      1,625,207      1,019,242      (1,252,752   1,762,226   

Property, plant and equipment, net

  27,220      213,935      222,183      (56   463,282   

Goodwill

  —        1,754,523      1,226,979      —        2,981,502   

Other intangible assets with indefinite lives

  —        9,600      37,290      (59   46,831   

Finite-lived intangible assets, net

  8,715      780,741      586,206      —        1,375,662   

Restricted cash

  —        —        —        —        —     

Deferred financing costs, net and other non-current assets

  43,982      6,684      23,081      (45   73,702   

Investments in subsidiaries

  3,829,127      271,122      189,998      (4,290,247   —     

Investments in unconsolidated entities

  15,814      14,764      47,269      13,328      91,175   

Deferred tax assets

  —        —        7,404      —        7,404   

Non-current income tax receivable

  2,336      —        —        —