FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(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, 2012

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, 2012 was 80,858,705.

 

 

 


Table of Contents

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended September 30, 2012

This 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, 2011 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

     3   

Item 1.

 

Financial Statements

     3   
 

a) Consolidated Statements of Operations for the Three and Nine Months Ended September  30, 2012 and 2011

     3   
 

b) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September  30, 2012 and 2011

     4   
 

c) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011

     5   
 

d) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011

     6   
 

e) Notes to Consolidated Financial Statements

     7   

Item 2.

 

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

     40   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     52   

Item 4.

 

Controls and Procedures

     54   

PART II. OTHER INFORMATION

     54   

Item 1.

 

Legal Proceedings

     54   

Item 1A.

 

Risk Factors

     54   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     55   

Item 6.

 

Exhibits

     55   

SIGNATURE

     56   

 

2


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,
 
     2012     2011     2012     2011  

Net product sales

   $ 459,813      $ 418,254      $ 1,399,025      $ 1,224,302   

Services revenue

     226,415        162,266        652,704        493,393   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     686,228        580,520        2,051,729        1,717,695   

License and royalty revenue

     5,188        5,249        11,333        17,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     691,416        585,769        2,063,062        1,735,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     223,612        193,899        671,664        573,919   

Cost of services revenue

     120,131        84,177        331,550        251,388   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     343,743        278,076        1,003,214        825,307   

Cost of license and royalty revenue

     1,898        1,731        5,394        5,214   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     345,641        279,807        1,008,608        830,521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     345,775        305,962        1,054,454        904,897   

Operating expenses:

        

Research and development

     40,562        34,772        120,009        112,662   

Sales and marketing

     160,644        134,376        478,544        407,973   

General and administrative

     105,837        91,895        347,757        292,284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     307,043        261,043        946,310        812,919   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     38,732        44,919        108,144        91,978   

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

     (54,861     (47,327     (161,119     (154,194

Other income (expense), net

     (1,072     (8,250     14,570        (5,477

Gain on sale of joint venture

     —          288,896        —          288,896   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     (17,201     278,238        (38,405     221,203   

Provision (benefit) for income taxes

     (10,677     42,652        (12,621     (4,414
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities, net of tax

     (6,524     235,586        (25,784     225,617   

Equity earnings of unconsolidated entities, net of tax

     3,007        4,118        10,417        4,922   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (3,517     239,704        (15,367     230,539   

Less: Net income attributable to non-controlling interests

     286        138        137        160   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (3,803     239,566        (15,504     230,379   

Preferred stock dividends

     (5,352     (5,358     (15,940     (16,682

Preferred stock repurchase

     —          —          —          23,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (9,155   $ 234,208      $ (31,444   $ 237,633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per common share

   $ (0.11   $ 2.84      $ (0.39   $ 2.81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per common share

   $ (0.11   $ 2.48      $ (0.39   $ 2.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares — basic

     80,792        82,486        80,492        84,508   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares — diluted

     80,792        97,090        80,492        100,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  

Net income (loss)

   $ (3,517   $ 239,704      $ (15,367   $ 230,539   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

        

Changes in cumulative translation adjustment

     39,695        (56,737     38,857        (18,116

Unrealized gains (losses) on available for sale securities

     141        (625     931        (944

Unrealized gains (losses) on hedging instruments

     10        (87     465        11,901   

Minimum pension liability adjustment

     (98     246        (218     326   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     39,748        (57,203     40,035        (6,833

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

     360       (179     360       4,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     39,388        (57,024     39,675        (11,266
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     35,871        182,680        24,308        219,273   

Less: Comprehensive income attributable to non-controlling interests

     286        138        137        160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 35,585      $ 182,542      $ 24,171      $ 219,113   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

 

     September 30, 2012     December 31, 2011  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 302,254      $ 299,173   

Restricted cash

     3,216        8,987   

Marketable securities

     897        1,086   

Accounts receivable, net of allowances of $34,764 and $24,577 at September 30, 2012 and December 31, 2011, respectively

     508,591        475,824   

Inventories, net

     332,512        320,269   

Deferred tax assets

     10,193        42,975   

Receivable from joint venture, net

     4,017        2,503   

Prepaid expenses and other current assets

     139,039        142,910   
  

 

 

   

 

 

 

Total current assets

     1,300,719        1,293,727   

Property, plant and equipment, net

     516,814        491,205   

Goodwill

     3,032,089        2,821,271   

Other intangible assets with indefinite lives

     57,481        69,546   

Finite-lived intangible assets, net

     1,885,236        1,785,925   

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

     97,031        97,786   

Receivable from joint venture, net of current portion

     14,533        15,455   

Investments in unconsolidated entities

     94,021        85,138   

Marketable securities

     3,181        2,254   

Deferred tax assets

     11,576        10,394   
  

 

 

   

 

 

 

Total assets

   $ 7,012,681      $ 6,672,701   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 52,486      $ 61,092   

Current portion of capital lease obligations

     6,374        6,083   

Short-term debt

     —          6,240   

Accounts payable

     163,168        155,464   

Accrued expenses and other current liabilities

     425,554        395,573   
  

 

 

   

 

 

 

Total current liabilities

     647,582        624,452   
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of current portion

     3,527,579        3,267,451   

Capital lease obligations, net of current portion

     13,711        12,629   

Deferred tax liabilities

     413,808        380,700   

Other long-term liabilities

     178,406        153,398   
  

 

 

   

 

 

 

Total long-term liabilities

     4,133,504        3,814,178   
  

 

 

   

 

 

 

Commitments and contingencies (Note 15)

    

Redeemable non-controlling interest

     —          2,497   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at September 30, 2012 and December 31, 2011); Authorized: 2,300 shares; Issued: 2,065 shares at September 30, 2012 and December 31, 2011; Outstanding: 1,774 shares at September 30, 2012 and December 31, 2011

     606,468        606,468   

Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 88,533 shares at September 30, 2012 and 87,647 shares at December 31, 2011; Outstanding: 80,854 shares at September 30, 2012 and 79,968 shares at December 31, 2011

     89        88   

Additional paid-in capital

     3,300,595        3,324,710   

Accumulated deficit

     (1,502,295     (1,486,791

Treasury stock, at cost, 7,679 shares at September 30, 2012 and December 31, 2011

     (184,971     (184,971

Accumulated other comprehensive income (loss)

     9,405        (30,270
  

 

 

   

 

 

 

Total stockholders’ equity

     2,229,291        2,229,234   

Non-controlling interests

     2,304        2,340   
  

 

 

   

 

 

 

Total equity

     2,231,595        2,231,574   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 7,012,681      $ 6,672,701   
  

 

 

   

 

 

 

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

 

5


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Nine Months  Ended
September 30,
 
     2012     2011  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ (15,367   $ 230,539   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

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

     16,087        32,726   

Depreciation and amortization

     322,371        287,033   

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

     4,681        —     

Non-cash stock-based compensation expense

     11,868        16,275   

Impairment of inventory

     295        445   

Impairment of long-lived assets

     274        1,674   

Impairment of intangible assets

     —          2,938   

Gain on sale of joint venture business

     —          (288,896

(Gain) loss on sale of property, plant and equipment

     (4,194     1,096   

Gain on sales of marketable securities

     —          (376

Equity earnings of unconsolidated entities, net of tax

     (10,417     (4,922

Deferred income taxes

     (43,619     (30,999

Other non-cash items

     5,736        (8,115

Changes in assets and liabilities, net of acquisitions:

    

Accounts receivable, net

     (8,261     (30,832

Inventories, net

     (15,596     (17,013

Prepaid expenses and other current assets

     4,171        (17,364

Accounts payable

     (16,743     11,977   

Accrued expenses and other current liabilities

     24,116        66,769   

Other non-current liabilities

     (21,639     (30,448
  

 

 

   

 

 

 

Net cash provided by operating activities

     253,763        222,507   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

(Increase) decrease in restricted cash

     5,771        (346,970

Purchases of property, plant and equipment

     (97,309     (94,692

Proceeds from sale of property, plant and equipment

     22,383        846   

Proceeds from disposition of business

     —          11,491   

Cash paid for acquisitions, net of cash acquired

     (384,780     (127,081

Cash received from sales of marketable securities

     271        8,392   

Cash received from (paid for) equity method investments

     6,556        (44,102

Increase in other assets

     (9,313     (55,888
  

 

 

   

 

 

 

Net cash used in investing activities

     (456,421     (648,004
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash paid for financing costs

     (2,313     (66,338

Cash paid for contingent purchase price consideration

     (16,248     (25,305

Proceeds from issuance of common stock, net of issuance costs

     14,260        24,159   

Repurchase of preferred stock

     —          (99,068

Proceeds from issuance of long-term debt

     198,288        1,752,708   

Payments on long-term debt

     (42,553     (1,195,337

Net proceeds under revolving credit facilities

     91,162        104,808   

Payments on short-term debt

     (6,240     —     

Repurchase of common stock

     —          (184,867

Cash paid for dividends

     (15,970     (68

Excess tax benefits on exercised stock options

     277        2,183   

Principal payments on capital lease obligations

     (4,925     (3,084

Other

     (2,811     (10,383
  

 

 

   

 

 

 

Net cash provided by financing activities

     212,927        299,408   
  

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     (7,188     1,537   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,081        (124,552

Cash and cash equivalents, beginning of period

     299,173        401,306   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 302,254      $ 276,754   
  

 

 

   

 

 

 

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

 

6


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, 2011 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. 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, 2011.

Certain reclassifications of prior period amounts have been made to conform to current period presentation. These reclassifications had no effect on net income or equity.

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

(2) 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, 2012, our cash equivalents consisted of money market funds.

(3) Inventories

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

 

     September 30, 2012      December 31, 2011  

Raw materials

   $ 98,009       $ 92,844   

Work-in-process

     77,219         72,939   

Finished goods

     157,284         154,486   
  

 

 

    

 

 

 
   $ 332,512       $ 320,269   
  

 

 

    

 

 

 

(4) Stock-based Compensation

We recorded stock-based compensation expense in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, respectively, as follows (in thousands):

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  

Cost of net revenue

   $ 269      $ 408      $ 801      $ 1,124   

Research and development

     752        881        2,379        3,017   

Sales and marketing

     751        1,016        2,581        3,184   

General and administrative

     1,854        1,981        6,107        8,950   
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,626        4,286        11,868        16,275   

Benefit for income taxes

     (536     (674     (1,951     (3,264
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 3,090      $ 3,612      $ 9,917      $ 13,011   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Table of Contents

(5) Net Income (Loss) per Common Share

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

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  

Numerator:

        

Net income (loss)

   $ (3,517   $ 239,704      $ (15,367   $ 230,539   

Preferred stock dividends

     (5,352     (5,358     (15,940     (16,682

Preferred stock repurchase

     —          —          —          23,936   

Less: Net income attributable to non-controlling interest

     286        138        137        160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (9,155   $ 234,208      $ (31,444   $ 237,633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted-average common shares outstanding — basic

     80,792        82,486        80,492        84,508   

Effect of dilutive securities:

        

Stock options

     —          661       —          1,078   

Warrants

     —          95       —          120   

Potentially issuable shares of common stock associated with deferred purchase price consideration

     —          189       —          189   

Potentially issuable shares of common stock associated Series B convertible preferred stock

     —          10,221       —          10,725   

Potentially issuable shares of common stock associated with convertible debt securities

     —          3,438       —          3,438   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding — diluted

     80,792        97,090        80,492        100,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per common share attributable to Alere Inc. and Subsidiaries

   $ (0.11   $ 2.84      $ (0.39   $ 2.81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per common share attributable to Alere Inc. and Subsidiaries

   $ (0.11   $ 2.48      $ (0.39   $ 2.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and nine months ended September 30, 2012, anti-dilutive shares of 13.7 million and 13.8 million, respectively, were excluded from the computations of diluted net loss per common share. For the three and nine months ended September 30, 2011, there were no anti-dilutive shares excluded from the computation of diluted net income per common share.

(6) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

For the three and nine months ended September 30, 2012, Series B preferred stock dividends amounted to $5.4 million and $15.9 million, respectively, and for the three and nine months ended September 30, 2011, Series B preferred stock dividends amounted to $5.4 million and $16.7 million, respectively, which reduced earnings available to common stockholders for purposes of calculating net income (loss) per common share for each of the respective periods. As of September 30, 2012, $5.3 million of Series B preferred stock dividends was accrued. As of October 15, 2012, payments have been made covering all dividend periods through September 30, 2012.

The Series B preferred stock dividends for the three and nine months ended September 30, 2012 were paid in cash. The Series B preferred stock dividends for the six months ended June 30, 2011 were paid in additional shares of Series B preferred stock. The Series B preferred stock dividends for the three months ended September 30, 2011 were paid in cash.

(b) Share Repurchases

During the first quarter of 2011, we repurchased in the open market and privately-negotiated transactions 183,000 shares of our Series B preferred stock, which were convertible into approximately 1.1 million shares of our common stock, at a cost of approximately $49.4 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $269.84 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $13.7 million of income attributable to common stockholders. Also during the first quarter of 2011, and pursuant to the same repurchase program, we repurchased 16,700 shares of our common stock at a cost of approximately $0.6 million, which we paid in cash.

 

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During the second quarter of 2011, we repurchased in the open market and privately-negotiated transactions, 174,788 shares of our Series B preferred stock, which were convertible into approximately 1.0 million shares of our common stock, at a cost of approximately $49.7 million, which we paid in cash. Also during the second quarter of 2011 and pursuant to the same repurchase program, we repurchased 8,300 shares of our common stock at a cost of approximately $0.3 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $284.28 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $10.2 million of income attributable to common stockholders.

During the third quarter of 2011, we repurchased approximately 7.6 million shares of our common stock at a cost of approximately $183.9 million, which we paid in cash.

(c) 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, 2012 and 2011 is provided below (in thousands):

 

     Nine Months Ended September 30,  
     2012     2011  
     Total
Stockholders’
Equity
    Non-
controlling
Interest
    Total Equity     Total
Stockholders’
Equity
    Non-
controlling
Interest
    Total Equity  

Balance, beginning of period

   $ 2,229,234      $ 2,340      $ 2,231,574      $ 2,575,038      $ 2,688      $ 2,577,726   

Issuance of common stock and warrants in connection with acquisitions

     —          —          —          1,000        —          1,000   

Exercise of common stock options, warrants and shares issued under employee stock purchase plan

     14,261        —          14,261        24,159        —          24,159   

Issuance of common stock for settlement of an acquisition-related contingent consideration obligation

     1,243        —          1,243        —          —          —     

Repurchase of common stock

     —          —          —          (184,867     —          (184,867

Repurchase of preferred stock

     —          —          —          (99,068     —          (99,068

Preferred stock dividends

     (15,970     —          (15,970     (5,391     —          (5,391

Stock-based compensation related to grants of common stock options

     11,868        —          11,868        16,275        —          16,275   

Excess tax benefits on exercised stock options

     (437     —          (437     1,452        —          1,452   

Purchase of subsidiary shares from non-controlling interests

     (35,079     —          (35,079     —          —          —     

Dividend relating to non-controlling interest

     —          (236 )     (236     —          (271     (271

Net income (loss)

     (15,504     200        (15,304     230,379        158        230,537   

Total other comprehensive income (loss)

     39,675        —          39,675        (11,266     —          (11,266
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 2,229,291      $ 2,304      $ 2,231,595      $ 2,547,711      $ 2,575      $ 2,550,286   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents a summary of the changes in redeemable non-controlling interest recorded in the mezzanine section of the balance sheet for the nine months ended September 30, 2012 and 2011 (in thousands):

 

    Nine Months  Ended
September 30, 2012
    Nine Months  Ended
September 30, 2011
 

Redeemable non-controlling interest, beginning of period

  $ 2,497      $ —     

Acquisition of non-controlling interest

    —          2,500   

Purchase of subsidiary shares from non-controlling interest

    (2,433     —     

Net income (loss)

    (64     2   
 

 

 

   

 

 

 

Redeemable non-controlling interest, end of period

  $ —        $ 2,502  
 

 

 

   

 

 

 

 

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(7) 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, 2012, we expensed acquisition-related costs of $0.8 million and $6.1 million, respectively, in general and administrative expense. During the three and nine months ended September 30, 2011, we expensed acquisition-related costs of $2.9 million and $6.2 million, respectively, in general and administrative expense.

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

Net assets acquired are recorded at their fair value on a preliminary basis and are subject to adjustment upon finalization of the fair value analysis as additional information becomes available. We are not aware of any information that indicates the final fair value analysis will differ materially from the preliminary estimates. Determination of the estimated useful lives of the individual categories of intangible assets was 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 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.

(a) Acquisitions in 2012

(i) eScreen

On April 2, 2012, we acquired eScreen, Inc., or eScreen, headquartered in Overland Park, Kansas, a technology-enabled provider of employment screening solutions for hiring and maintaining healthier and more efficient workforces. The preliminary aggregate purchase price was approximately $295.0 million, which consisted of $271.4 million in cash and a contingent consideration obligation with an aggregate acquisition date fair value of $23.6 million. Included in our consolidated statements of operations for the three and nine months ended September 30, 2012 is revenue totaling approximately $40.1 million and $80.1 million, respectively, related to eScreen. The operating results of eScreen 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 2012

During the nine months ended September 30, 2012, we acquired the following businesses for a preliminary aggregate purchase price of $152.2 million, which included cash payments totaling $106.3 million and contingent consideration obligations with an aggregate acquisition date fair value of $45.9 million.

 

   

Reatrol Comercializacao De Produtos De Saude, LDA, subsequently renamed Alere Lda, located in Vila Nova de Gaia, Portugal, a distributor of products for drugs of abuse testing (Acquired January 2012)

 

   

Kullgren Holding AB, or Kullgren, located in Gensta, Sweden, a company that manufactures and distributes high quality intimacy and pharmaceutical products (Acquired February 2012)

 

   

Wellogic ME FZ-LLC, or Wellogic UAE, located in Dubai, United Arab Emirates, a company that provides development services to Alere Wellogic, LLC, which acquired the assets of Method Factory, Inc. (d/b/a Wellogic), or Wellogic, in December 2011 (Acquired February 2012)

 

   

certain assets, primarily including customer and patient lists, of AmMed Direct LLC, or AmMed, located near Nashville, Tennessee, a privately-owned mail-order provider of home-diabetes testing products and supplies (Acquired March 2012)

 

   

MedApps Holding Company, Inc., or MedApps, headquartered in Scottsdale, Arizona, a developer of innovative remote health monitoring solutions that deliver efficient cost-effective connectivity between patient, care provider and electronic medical records (Acquired July 2012)

 

   

Amedica Biotech, Inc., or Amedica, located in Hayward, California, a company focused on the development and manufacture of in vitro diagnostic tests (Acquired July 2012)

 

   

DiagnosisOne, Inc., or DiagnosisOne, located in Lowell, Massachusetts, a software company that provides clinical analytics technology and data-driven content to hospitals, physician groups, insurers and governments (Acquired July 2012)

 

   

Seelen Care Laege- og & Hospitalsartikler ApS, or Seelen, located in Holstebro, Denmark, a distributor of consumables, instruments and equipment to doctors, specialists and physiotherapists (Acquired August 2012)

 

   

certain assets of Diagnostik Nord, or Diagnostik, located in Schwerin, Germany, a company focused on the sale of drug screening and in vitro diagnostic medical devices and a provider of diagnostic solutions (Acquired September 2012)

 

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The operating results of Alere Lda, AmMed, MedApps, Amedica, Seelen and Diagnostik are included in our professional diagnostics reporting unit and business segment. The operating results of Wellogic UAE and DiagnosisOne are included in our health management reporting unit and business segment. The operating results of Kullgren are included in our consumer diagnostics reporting unit and business segment.

Our consolidated statements of operations for the three and nine months ended September 30, 2012 included revenue totaling approximately $14.4 million and $26.3 million, respectively, related to these businesses. Goodwill has been recognized in all of these acquisitions and amounted to approximately $83.7 million. Goodwill related to the acquisitions of AmMed and Diagnostik, which totaled $8.2 million, is deductible for tax purposes. The goodwill related to the remaining 2012 acquisitions is not deductible for tax purposes.

A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated during the nine months ended September 30, 2012 is as follows (in thousands):

 

     eScreen      Other      Total  

Current assets (1)

   $ 32,743       $ 7,210       $ 39,953   

Property, plant and equipment

     5,664         2,295         7,959   

Goodwill

     154,721         83,711         238,432   

Intangible assets

     204,200         93,931         298,131   

Other non-current assets

     481         151        632   
  

 

 

    

 

 

    

 

 

 

Total assets acquired

     397,809         187,298         585,107   
  

 

 

    

 

 

    

 

 

 

Current liabilities

     22,796         3,967         26,763   

Non-current liabilities

     80,023         31,145         111,168   
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     102,819         35,112         137,931   
  

 

 

    

 

 

    

 

 

 

Net assets acquired

     294,990         152,186         447,176   

Less:

        

Contingent consideration

     23,600         45,860         69,460   
  

 

 

    

 

 

    

 

 

 

Cash paid

   $ 271,390       $ 106,326       $ 377,716   
  

 

 

    

 

 

    

 

 

 

 

(1) 

Includes approximately $2.8 million of acquired cash.

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

 

     eScreen      Other      Total      Weighted-
average

Useful  Life
 

Core technology and patents

   $ 93,200       $ 49,203       $ 142,403         19.0 years   

Trademarks and trade names

     17,300         1,030         18,330         19.0 years   

Customer relationships

     79,500         39,488         118,988         19.5 years   

Non-competition agreements

     —           1,010        1,010         5.1 years   

Other

     14,200         —           14,200         10.0 years   

In-process research and development

     —           3,200        3,200         N/A   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

   $ 204,200       $ 93,931       $ 298,131      
  

 

 

    

 

 

    

 

 

    

(b) Acquisitions in 2011

During 2011, we acquired the following businesses for a preliminary aggregate purchase price of $787.4 million, which included cash payments totaling $603.7 million, 831,915 shares of our common stock with an acquisition date fair value of $16.2 million, a previously-held investment with a fair value totaling $113.2 million, contingent consideration obligations with an aggregate acquisition date fair value of $48.7 million, deferred purchase price consideration with an acquisition date fair value of $4.2 million and debt forgiveness with a fair value of $1.5 million.

 

   

90% interest in BioNote, Inc., or BioNote, headquartered in South Korea, a manufacturer of diagnostic products for the veterinary industry (Acquired January 2011). We previously owned a 10% interest in BioNote.

 

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assets, including domain name, of Pregnancy.org, LLC, or Pregnancy.org, a U.S.-based company providing a website for preconception, pregnancy and newborn care content, tools and sharing (Acquired January 2011)

 

   

Home Telehealth Limited, subsequently renamed Alere Connected Health Limited, or Alere Connected Health, located in Cardiff, Wales, a company that focuses on delivering integrated, comprehensive services and programs to health and social care providers and insurers (Acquired February 2011)

 

   

Bioeasy Diagnostica Ltda., or Bioeasy, located in Belo Horizonte, Brazil, a company that markets and sells rapid diagnostic tests and systems for laboratory diagnosis, prevention and monitoring of immunological diseases and fertility (Acquired March 2011)

 

   

80.92% interest in Standing Stone, Inc., or Standing Stone, located in Westport, Connecticut, a company that focuses on disease state management by enhancing the quality of care provided to patients who require long-term therapy for chronic disease management (Acquired May 2011). During May 2012, we acquired the remaining 19.08% interest in Standing Stone.

 

   

certain assets, rights, liabilities and properties of Drug Detection Devices, Inc., or 3DL, located in Alpharetta, Georgia, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired July 2011)

 

   

Colibri Medical AB, or Colibri, located in Helsingborg, Sweden, a distributor of point-of-care drugs of abuse diagnostic products primarily to the Scandinavian marketplace (Acquired July 2011)

 

   

Laboratory Data Systems, Inc., or LDS, located in Tampa, Florida, a provider of healthcare software products, services, consulting and solutions (Acquired August 2011)

 

   

certain assets, liabilities and properties of Abatek Medical LLC, or Abatek, located in Dover, New Hampshire, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired September 2011)

 

   

Forensics Limited, or ROAR, located in Worcestershire, United Kingdom, a company that provides forensic quality toxicology services across the United Kingdom (Acquired September 2011)

 

   

Mahsan Diagnostika Vertriebsgesellschaft mbH, or Mahsan, located in Reinbek, Germany, a distributor of in vitro diagnostic drugs of abuse products primarily to the German marketplace (Acquired October 2011)

 

   

Avee Laboratories Inc. and related companies, which we refer to collectively as Avee, located in Tampa, Florida, a privately-owned provider of drug testing services in the field of pain management (Acquired October 2011)

 

   

Medical Automation Systems Inc., or MAS, located in Charlottesville, Virginia, a provider of network-based software solutions for point-of-care testing (Acquired October 2011)

 

   

Axis-Shield plc, or Axis-Shield, located in Dundee, Scotland, a U.K. publicly traded company focused on the development and manufacture of in vitro diagnostic tests for use in clinical laboratories and at the point of care (Acquired November 2011)

 

   

certain assets and properties of 1 Medical Distribution, Inc., or 1 Medical, located in Worthington, Ohio, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired November 2011)

 

   

Arriva Medical LLC, or Arriva, located in Coral Springs, Florida, a privately-owned mail-order provider of home-diabetes testing products and supplies (Acquired November 2011)

 

   

Method Factory, Inc. (d/b/a Wellogic), or Wellogic, headquartered in Waltham, Massachusetts, a provider of software solutions designed to connect the healthcare community (Acquired December 2011)

The operating results of BioNote, Bioeasy, 3DL, Colibri, LDS, Abatek, ROAR, Mahsan, Avee, MAS, Axis-Shield, 1 Medical and Arriva are included in our professional diagnostics reporting unit and business segment. The operating results of Pregnancy.org, Alere Connected Health, Standing Stone and Wellogic are included in our health management reporting unit and business segment.

Our consolidated statements of operations for the three and nine months ended September 30, 2011 included revenue totaling approximately $5.6 million and $15.3 million, respectively, related to the businesses acquired during the first nine months of 2011. Goodwill has been recognized in all of the acquisitions, with the exception of 1 Medical, and amounted to approximately $364.2

 

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million. Goodwill related to the acquisitions of Pregnancy.org, 3DL, Abatek, LDS and Wellogic, which totaled $32.3 million, is expected to be deductible for tax purposes. The goodwill related to the remaining 2011 acquisitions is not expected to be deductible for tax purposes.

A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated in 2011 is as follows (in thousands):

 

Current assets (1)

   $ 132,360   

Property, plant and equipment

     68,474   

Goodwill

     364,213   

Intangible assets

     416,624   

Other non-current assets

     27,679   
  

 

 

 

Total assets acquired

     1,009,350   
  

 

 

 

Current liabilities

     90,301   

Non-current liabilities

     129,132   
  

 

 

 

Total liabilities assumed

     219,433   
  

 

 

 

Less:

  

Fair value of non-controlling interest

     2,500   
  

 

 

 

Net assets acquired

     787,417   

Less:

  

Fair value of previously-held equity investment

     113,168   

Contingent consideration

     48,685   

Fair value of common stock issued

     16,183   

Loan forgiveness

     1,489   

Deferred purchase price consideration

     4,170   
  

 

 

 

Cash paid

   $ 603,722   
  

 

 

 

 

(1) 

Includes approximately $23.2 million of acquired cash.

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

 

     Amount      Weighted-
Average

Useful  Life
 

Core technology and patents

   $ 76,659         10.1 years   

Database

     64         3.0 years   

Trademarks and trade names

     14,197         10.1 years   

Customer relationships

     243,725         12.3 years   

Non-competition agreements

     8,306         5.3 years   

Software

     7,400         10.9 years   

Other

     7,767         15.6 years   

In-process research and development

     58,506         N/A   
  

 

 

    

Total intangible assets

   $ 416,624      
  

 

 

    

 

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Table of Contents

(c) Restructuring Plans of Acquisitions

In connection with several of our acquisitions consummated during 2008 and prior, we initiated integration plans to consolidate and restructure certain functions and operations, including the costs associated with the termination of certain personnel of these acquired entities and the closure of certain of the acquired entities’ leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of these entities and are subject to potential adjustments as certain exit activities are refined. The following table summarizes the liabilities established for exit activities related to these acquisitions and the total exit costs incurred since inception of each plan (in thousands):

 

     Balance at
December  31,
2011
     Adjustments
to  the
Reserve (1)
    Amounts
Paid
    Balance at
September  30,
2012
     Exit  Costs
Since
Inception
 

Acquisition of Matria Healthcare, Inc.:

            

Severance-related costs

   $ 68       $ —        $ —        $ 68       $ 13,664   

Facility costs

     395         (111     (105     179         4,674   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total costs for Matria Healthcare, Inc.

     463         (111     (105     247         18,338   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Acquisition of Cholestech Corporation:

            

Severance-related costs

     —           —          —          —           5,845   

Facility costs

     1,304         —          (180     1,124         2,732   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total costs for Cholestech Corporation

     1,304         —          (180     1,124         8,577   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total costs for all plans

   $ 1,767       $ (111   $ (285   $ 1,371       $ 26,915   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) 

These adjustments resulted in a change in the aggregate purchase price and related goodwill for each related acquisition.

Of the total $1.4 million liability outstanding as of September 30, 2012, $0.5 million is included in accrued expenses and other current liabilities and $0.9 million is included in other long-term liabilities.

Although we believe our plans and estimated exit costs for our acquisitions are reasonable, actual spending for exit activities may differ from current estimated exit costs.

(8) 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, 2012 and 2011 (in thousands):

 

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

Statement of Operations Caption

   2012      2011     2012      2011  

Cost of net revenue

   $ 1,080       $ 80      $ 2,069       $ 2,310   

Research and development

     —           (1     638         433   

Sales and marketing

     927         935        1,954         3,809   

General and administrative

     1,232         2,115        5,471         13,074   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

     3,239         3,129        10,132         19,626   

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

     48         84        158         206   

Equity earnings of unconsolidated entities, net of tax

     —           199        —           534   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total charges

   $ 3,287       $ 3,412      $ 10,290       $ 20,366   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

(a) 2012 Restructuring Plans

In 2012, management developed cost reduction efforts within our professional diagnostics business segment, including the integration of our businesses in Brazil. Additionally, management developed new plans to continue our efforts to reduce costs within our health management business segment, including vacating facility space. The following table summarizes the restructuring activities related to our 2012 restructuring plans for the three and nine months ended September 30, 2012 (in thousands):

 

     Three Months Ended September 30, 2012  
     Professional
Diagnostics
     Health
Management
     Total  

Severance-related costs

   $ 691       $ 516       $ 1,207   

Facility and transition costs

     —           465         465   

Other exit costs

     —           5         5   
  

 

 

    

 

 

    

 

 

 

Cash charges

     691         986         1,677   

Other non-cash charges

     55         —           55   
  

 

 

    

 

 

    

 

 

 

Total charges

   $    746       $    986       $ 1,732   
  

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2012  
     Professional
Diagnostics
     Health
Management
     Total  

Severance-related costs

   $ 3,009       $ 1,735       $ 4,744   

Facility and transition costs

     —           590         590   

Other exit costs

     —           5         5   
  

 

 

    

 

 

    

 

 

 

Cash charges

     3,009         2,330         5,339   

Other non-cash charges

     55         —           55   
  

 

 

    

 

 

    

 

 

 

Total charges

   $ 3,064       $ 2,330       $ 5,394   
  

 

 

    

 

 

    

 

 

 

We anticipate incurring approximately $0.3 million in additional severance-related costs under these plans related to our professional diagnostics business segment, $1.0 million in additional facility costs under our health management business segment through 2014 and may develop additional plans over the remainder of 2012. As of September 30, 2012, $1.7 million in severance and exit costs remain unpaid.

(b) 2011 Restructuring Plans

In 2011, management executed a company-wide cost reduction plan, which impacted our corporate and other business segment, as well as our health management and professional diagnostics business segments. Management also developed plans within our professional diagnostics business segment to consolidate operating activities among certain of our European and Asia Pacific subsidiaries, including transferring the manufacturing of our Panbio products from Australia to our Standard Diagnostics facility in South Korea. Additionally, within our health management business segment, management executed plans to further reduce costs and improve efficiencies, as well as cease operations at our GeneCare Medical Genetics Center, Inc., facility in Chapel Hill, North Carolina, and transfer the majority of our Quality Assured Services, Inc. operation in Orlando, Florida to our facility in Livermore, California. The following table summarizes the restructuring activities related to our 2011 restructuring plans for the three and nine months ended September 30, 2012 and 2011 and since inception (in thousands):

Professional Diagnostics

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
     Since
Inception
 
     2012      2011      2012      2011     

Severance-related costs

   $ 639       $ 2,120       $ 2,914       $ 5,721       $ 14,961   

Facility and transition costs

     387         208         1,121         208         1,482   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     1,026         2,328         4,035         5,929         16,443   

Fixed asset and inventory impairments

     290         43         424         659         1,083   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 1,316       $ 2,371       $ 4,459       $ 6,588       $ 17,526   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Health Management

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
     Since
Inception
 
     2012      2011      2012      2011     

Severance-related costs

   $ —         $ 82       $ —         $ 2,274       $ 2,254   

Facility and transition costs

     114         388         25         4,195         6,366   

Other exit costs

     16         58         60         58         154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     130         528         85         6,527         8,774   

Fixed asset and inventory impairments

     —           60         85         864         949   

Intangible asset impairments

     —           —           —           2,935         2,935   

Other non-cash charges

     —           —           —           812         761   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 130       $ 588       $ 170       $ 11,138       $ 13,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Corporate and Other

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
     Since
Inception
 
     2012      2011      2012      2011     

Severance-related costs

   $ 5       $ 69       $ 31       $ 1,117       $ 1,224   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     5         69         31         1,117         1,224   

Fixed asset and inventory impairments

     —           —           —           2         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 5       $ 69       $ 31       $ 1,119       $ 1,227   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We anticipate incurring approximately $2.5 million in additional costs under these plans related to our professional diagnostics business segment, primarily related to severance and facility exit costs, and may also incur impairment charges on assets as plans are finalized. We anticipate incurring approximately $0.9 million in additional costs under these plans related to our health management business segment, primarily related to facility lease obligations through 2014. As of September 30, 2012, $2.9 million in cash charges remain unpaid.

(c) 2010 and 2008 Restructuring Plans

In 2010, management developed several plans to reduce costs and improve efficiencies within our health management and professional diagnostics business segments. In May 2008, management decided to close our facility located in Bedford, England and initiated steps to cease operations at this facility and transition the manufacturing operations principally to our manufacturing facilities in Shanghai and Hangzhou, China. Additionally in 2008, management developed and initiated plans to transition the businesses of Cholestech to our San Diego, California facility. The following table summarizes the restructuring activities related to these restructuring plans for the three and nine months ended September 30, 2012 and 2011 and since inception (in thousands):

Professional Diagnostics

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
    Since
Inception
 
     2012      2011     2012      2011    

Severance-related costs

   $ —         $ (107   $ —         $ (29   $ 8,897   

Facility and transition costs

     77         266        227         828        8,539   

Other exit costs

     16         22        52         68        4,470   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Cash charges

     93         181        279         867        21,906   

Fixed asset and inventory impairments

     —           —          —           —          10,309   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total charges

   $ 93       $ 181      $ 279       $ 867      $ 32,215   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Health Management

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
     Since
Inception
 
     2012      2011      2012     2011     

Severance-related costs

   $ —         $ —         $ —        $ —         $ 4,647   

Facility and transition costs

     —           —           (84     40         2,392   

Other exit costs

     11         4         41        80         329   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Cash charges

     11         4         (43     120         7,368   

Fixed asset and inventory impairments

     —           —           —          —           165   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total charges

   $ 11       $ 4       $ (43   $ 120       $ 7,533   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

We anticipate incurring an additional $0.5 million in facility lease obligation charges related to the Cholestech plan through 2017 and do not anticipate incurring significant additional charges under the other plans. As of September 30, 2012, $1.1 million in facility related costs remain unpaid.

In addition to the restructuring charges discussed above, certain charges associated with the Bedford facility closure were borne by SPD, our 50/50 joint venture with the Procter & Gamble Company, or P&G. Of the restructuring charges recorded by SPD, 50% has been included in equity earnings of unconsolidated entities, net of tax, in our consolidated statement of operations. The following table summarizes the 50% portion of the restructuring charges borne by SPD and included in equity earnings of unconsolidated entities, net of tax, for the three and nine months ended September 30, 2011 and since inception (in thousands):

 

    Three Months  Ended
September 30, 2011
    Nine Months  Ended
September 30, 2011
    Since
Inception
 

Severance-related costs

  $ —        $ 30      $ 5,797   

Facility and transition costs

    199        432        5,396   

Other exit costs

    —          —          283   
 

 

 

   

 

 

   

 

 

 

Cash charges

    199        462        11,476   

Fixed asset and inventory impairments

    —          72        4,635   
 

 

 

   

 

 

   

 

 

 

Total charges included in equity earnings of unconsolidated entities, net of tax

  $ 199      $ 534      $ 16,111   
 

 

 

   

 

 

   

 

 

 

We do not anticipate incurring significant additional restructuring charges under this plan.

(d) Restructuring Reserves

The following table summarizes our restructuring reserves related to the plans described above, of which $4.4 million is included in accrued expenses and other current liabilities and $1.3 million is included in other long-term liabilities on our consolidated balance sheets (in thousands):

 

     Severance-
related

Costs
    Facility  and
Transition
Costs
    Other Exit
Costs
    Total  

Balance, December 31, 2011

   $ 3,380      $ 5,215      $ 593      $ 9,188   

Cash charges

     7,690        1,879        157        9,726   

Payments

     (8,891     (4,083     (170     (13,144

Currency adjustments

     (47     2        —          (45
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

   $ 2,132      $ 3,013      $ 580      $ 5,725   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

(9) Long-term Debt

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

 

     September 30, 2012     December 31, 2011  

A term loans (1)

   $ 893,750      $ 917,188   

B term loans

     915,750        922,688   

Incremental B-1 term loans

     248,125        250,000   

Incremental B-2 term loans

     197,163        —     

Secured credit facility revolving line of credit

     97,500        —     

3% Senior subordinated convertible notes

     150,000        150,000   

9% Senior subordinated notes

     392,493        391,233   

7.875% Senior notes

     246,319        245,621   

8.625% Senior subordinated notes

     400,000        400,000   

Other lines of credit

     11,251        19,603   

Other

     27,714        32,210   
  

 

 

   

 

 

 
     3,580,065        3,328,543   

Less: Current portion

     (52,486     (61,092
  

 

 

   

 

 

 
   $ 3,527,579      $ 3,267,451   
  

 

 

   

 

 

 

 

(1) 

Includes “A” term loans and “Delayed-Draw” 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 and nine months ended September 30, 2012 and 2011, respectively, as follows (in thousands):

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012      2011     2012      2011  

Secured credit facility(1)

   $ 27,474       $ 21,160      $ 77,422       $ 21,380   

Former secured credit facility(2)

     —           (279     —           53,978 (3) 

3% Senior subordinated convertible notes

     1,246         1,246        3,738         3,742   

9% Senior subordinated notes

     10,373         9,751        31,090         29,219   

7.875% Senior notes

     5,763         5,378        17,276         16,112   

8.625% Senior subordinated notes

     9,274         8,909        27,823         26,736   
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 54,130       $ 46,165      $ 157,349       $ 151,167   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

Includes “A” term loans, including the “Delayed-Draw” term loans; “B” term loans; “Incremental B-1” term loans; “Incremental B-2” term loans; and revolving line-of-credit loans. For the three and nine months ended September 30, 2012, the amount includes $1.3 million and $4.0 million, respectively, related to the amortization of fees paid for certain debt modifications.

(2) 

Includes loans under First Lien Credit Agreement and Second Lien Credit Agreement.

(3) 

Amount includes approximately $29.7 million recorded in connection with the termination of our former secured credit facility and related interest rate swap agreement, coupled with the amortization of fees paid for certain debt modifications.

The following summarizes the material terms of our secured credit facility that have changed significantly since December 31, 2011. All other terms of our secured credit facility as described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, but omitted below, have not changed since that date.

On March 28, 2012, we and certain of our subsidiaries entered into a third amendment to the credit agreement that governs our secured credit facility, or the credit agreement. The third amendment provides for an additional term loan facility consisting of “Incremental B-2” term loans in the aggregate principal amount of $200.0 million and thereby increases the total amount of the credit available to us under the secured credit facility to $2.55 billion in aggregate principal amount, consisting of term loans in the aggregate principal amount of $2.3 billion and, subject to our continued compliance with the credit agreement, a $250.0 million revolving line of credit; the revolving line of credit continues to include a sublimit for the issuance of letters of credit. On March 28, 2012, we borrowed the entire $200.0 million principal amount of the “Incremental B-2” term loans.

 

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Table of Contents

Under the terms of the third amendment, we must repay the principal amount of the “Incremental B-2” term loans in twenty consecutive quarterly installments, beginning on June 30, 2012 and continuing through March 31, 2017 (all previously due installments of which we have paid in full), in the amount of $0.5 million each, and a final installment on June 30, 2017 in the amount of $190.0 million; notwithstanding the foregoing, and subject to certain exceptions provided for in the credit agreement, in the event that any of our existing 3% senior subordinated convertible notes, 9% senior subordinated notes or 7.875% senior notes remain outstanding on the date that is six months prior to the relevant maturity date thereof, respectively, then the “Incremental B-2” term loans (as well as all other term loans and all revolving credit loans under the secured credit facility) shall instead mature in full on the relevant prior date. Otherwise, the terms and conditions, including the interest rates, that apply to the “Incremental B-2” term loans under the credit agreement are substantially the same as the terms and conditions, including the interest rates, that apply to the existing “B” term loans under the credit agreement.

(10) Derivative Financial Instruments

We manage our economic and transaction exposure to certain market-based risks through the use of derivative instruments. Our objective for holding derivative instruments has been to reduce volatility of net earnings and cash flows associated with changes in interest rates and foreign currency exchange rates. We do not hold or issue derivative financial instruments for speculative purposes.

(a) Interest Rate Risk

We used interest rate swap contracts in the management of our interest rate exposure related to our former secured credit facility. On June 30, 2011, we entered into a new secured credit facility and, in connection therewith, repaid in full all outstanding indebtedness under and terminated our former secured credit facility and related interest rate swaps.

(b) Foreign Currency Risk

In connection with our acquisition of Axis-Shield, we acquired a number of foreign currency forward contracts. The specific risk hedged in these contracts was the undiscounted foreign currency spot rate risk on forecasted foreign currency revenue. As of September 30, 2012, all of the acquired foreign currency forward contracts were settled. As of December 31, 2011, the notional value of these contracts was $16.6 million and CHF 5.4 million, respectively. We report the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and it is subsequently reclassified into net earnings in the period in which the hedged transaction affects net earnings or the forecasted transaction is no longer probable of occurring.

The following tables summarize the fair value of our derivative instruments and the effect of derivative instruments on/in our accompanying consolidated balance sheets and consolidated statements of operations (in thousands):

 

Derivative Instruments

 

Balance Sheet Caption

   Fair Value at
September  30,
2012
     Fair Value at
December  31,
2011
 

Foreign currency forward contracts

 

Accrued expenses and other current liabilities

   $ —         $ 447   
    

 

 

    

 

 

 

 

Derivative Instruments

 

Location of Gain (Loss) Recognized in Income

   Amount of
Gain  Recognized
During the Three
Months Ended
September 30, 2012
     Amount of
Loss  Recognized
During the Three
Months Ended
September 30, 2011
 

Foreign exchange forward contract

 

Other comprehensive income (loss)

   $ 10       $ (88
    

 

 

    

 

 

 

Total gain (loss)

 

Other comprehensive income (loss)

   $ 10       $ (88
    

 

 

    

 

 

 

 

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Table of Contents

Derivative Instruments

 

Location of Gain (Loss) Recognized in Income

   Amount of
Gain  Recognized
During the Nine
Months Ended
September 30, 2012
     Amount of
Gain (Loss)  Recognized
During the Nine
Months Ended
September 30, 2011
 

Foreign exchange forward contract

 

Other comprehensive income (loss)

   $ 465       $ (80

Interest rate swap contracts

 

Other comprehensive income (loss)

     —           1,841   
    

 

 

    

 

 

 

Total gain

 

Other comprehensive income (loss)

   $ 465       $ 1,761   
    

 

 

    

 

 

 

(11) 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. Our Level 1 assets and liabilities include investments in marketable securities.

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. Our Level 2 assets and liabilities include foreign exchange forward contracts.

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. The fair value of the contingent consideration obligations related to our acquisitions is valued using Level 3 inputs.

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

Description

   September 30,
2012
     Quoted Prices in
Active  Markets
(Level 1)
     Significant Other
Observable  Inputs
(Level 2)
     Unobservable Inputs
(Level  3)
 

Assets:

           

Marketable securities

   $ 4,078       $ 4,078       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 4,078       $ 4,078       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 171,276       $ —         $ —         $ 171,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 171,276       $ —         $ —         $ 171,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Description

    December 31, 
2011
     Quoted Prices in
Active  Markets
(Level 1)
     Significant Other
Observable  Inputs
(Level 2)
     Unobservable Inputs
(Level  3)
 

Assets:

           

Marketable securities

   $ 3,340       $ 3,340       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,340       $ 3,340       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

Foreign exchange forward contracts (2)

   $ 447       $ —         $ 447       $ —     

Contingent consideration obligations (1)

     140,047         —           —           140,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 140,494       $ —         $ 447       $ 140,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

 

(1) 

The fair value measurements for our contingent consideration obligations relate to acquisitions completed after January 1, 2009 and are valued using Level 3 inputs. 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.

(2) 

The fair value of the foreign exchange forward contracts was measured using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates.

Changes in the fair value of our Level 3 contingent consideration obligations during the nine months ended September 30, 2012 were as follows (in thousands):

 

Fair value of contingent consideration obligations, January 1, 2012

   $ 140,047   

Acquisition date fair value of contingent consideration obligations recorded

     69,461   

Foreign currency

     314   

Payments

     (21,764

Present value accretion

     16,272   

Adjustments, net (income) expense

     (33,054
  

 

 

 

Fair value of contingent consideration obligations, September 30, 2012

   $ 171,276   
  

 

 

 

At September 30, 2012 and December 31, 2011, 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 $3.6 billion at September 30, 2012. The carrying amount and estimated fair value of our long-term debt were $3.3 billion at December 31, 2011. 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.

(12) 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,  
     2012     2011     2012     2011  

Service cost

   $ —        $ —        $ —        $ —     

Interest cost

     199        203        596        610   

Expected return on plan assets

     (152     (156     (457     (468

Amortization of prior service costs

     104        106        312        320   

Realized losses

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 151      $ 153      $ 451      $ 462   
  

 

 

   

 

 

   

 

 

   

 

 

 

(13) 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, Health Management, 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.

 

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Table of Contents

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, 2012 and 2011 is as follows (in thousands):

 

     Professional
Diagnostics
     Health
Management
    Consumer
Diagnostics
    Corporate
and
Other
    Total  

Three Months Ended September 30, 2012:

           

Net revenue

   $ 531,442       $ 135,078      $ 24,896      $ —        $ 691,416   

Operating income (loss)

   $ 63,298       $ (14,357   $ 4,615      $ (14,824   $ 38,732   

Depreciation and amortization

   $ 85,030       $ 24,313      $ 1,167      $ 239      $ 110,749   

Restructuring charge

   $ 2,139       $ 1,095      $ —        $ 5      $ 3,239   

Stock-based compensation

   $ —         $ —        $ —        $ 3,626      $ 3,626   

Three Months Ended September 30, 2011:

           

Net revenue

   $ 429,952       $ 129,931      $ 25,886      $ —        $ 585,769   

Operating income (loss)

   $ 64,893       $ (12,565   $ 3,844      $ (11,253   $ 44,919   

Depreciation and amortization

   $ 63,053       $ 26,228      $ 1,428      $ 208      $ 90,917   

Restructuring charge

   $ 2,587       $ 530      $ (57   $ 69      $ 3,129   

Stock-based compensation

   $ —         $ —        $ —        $ 4,286      $ 4,286   

Nine Months Ended September 30, 2012:

           

Net revenue

   $ 1,589,909       $ 404,452      $ 68,701      $ —        $ 2,063,062   

Operating income (loss)

   $ 196,728       $ (46,379   $ 7,679      $ (49,884   $ 108,144   

Depreciation and amortization

   $ 245,911       $ 72,152      $ 3,604      $ 704      $ 322,371   

Non-cash charge associated with acquired inventory

   $ 4,681       $ —        $ —        $ —        $ 4,681   

Restructuring charge

   $ 7,750       $ 2,351      $ —        $ 31      $ 10,132   

Stock-based compensation

   $ —         $ —        $ —        $ 11,868      $ 11,868   

Nine Months Ended September 30, 2011:

           

Net revenue

   $ 1,254,838       $ 408,566      $ 72,014      $ —        $ 1,735,418   

Operating income (loss)

   $ 174,459       $ (39,652   $ 9,107      $ (51,936   $ 91,978   

Depreciation and amortization

   $ 200,645       $ 81,871      $ 4,007      $ 510      $ 287,033   

Restructuring charge

   $ 7,445       $ 11,119      $ (57   $ 1,119      $ 19,626   

Stock-based compensation

   $ —         $ —        $ —        $ 16,275      $ 16,275   

Assets:

           

As of September 30, 2012

   $ 5,819,658       $ 583,832      $ 188,912      $ 420,279      $ 7,012,681   

As of December 31, 2011

   $ 5,826,756       $ 624,305      $ 199,422      $ 22,218      $ 6,672,701   

The following tables summarize our net revenue from the professional diagnostics and health management reporting segments by groups of similar products and services for the three and nine months ended September 30, 2012 and 2011 (in thousands):

Professional Diagnostics Segment

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
 
     2012      2011      2012      2011  

Cardiology

   $ 122,372       $ 127,943       $ 386,795       $ 390,652   

Infectious disease

     136,561         142,639         425,398         405,559   

Toxicology

     156,074         93,497         437,736         267,834   

Diabetes

     35,670         —           100,628         —     

Other

     78,077         62,172         230,519         176,206   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net product sales and services revenue

     528,754         426,251         1,581,076         1,240,251   

License and royalty revenue

     2,688         3,701         8,833         14,587   
  

 

 

    

 

 

    

 

 

    

 

 

 

Professional diagnostics net revenue

   $ 531,442       $ 429,952       $ 1,589,909       $ 1,254,838   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Health Management Segment

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
 
     2012      2011      2012      2011  

Disease and case management

   $ 57,383       $ 59,441       $ 165,277       $ 182,118   

Wellness

     24,290         24,427         80,881         80,369   

Women’s & children’s health

     29,136         28,509         90,220         85,550   

Patient self-testing services

     24,269         17,554         68,074         60,529   
  

 

 

    

 

 

    

 

 

    

 

 

 

Health management net revenue

   $ 135,078       $ 129,931       $ 404,452       $ 408,566   
  

 

 

    

 

 

    

 

 

    

 

 

 

(14) Related Party Transactions

In May 2007, we completed the formation of SPD, our 50/50 joint venture with 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 receivable from the joint venture of $4.0 million and $2.5 million as of September 30, 2012 and December 31, 2011, respectively. Included in the $4.0 million receivable balance as of September 30, 2012 is approximately $1.6 million of costs incurred in connection with our 2008 SPD-related restructuring plans. Included in the $2.5 million receivable balance as of December 31, 2011 is approximately $1.5 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $14.5 million and $15.5 million as of September 30, 2012 and December 31, 2011, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the joint venture was completed have been classified as other receivables within prepaid expenses and other current assets on our accompanying consolidated balance sheets in the amount of $7.1 million and $7.3 million as of September 30, 2012 and December 31, 2011, 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 $15.9 million and $47.4 million during the three and nine months ended September 30, 2012, respectively, and $19.4 million and $52.0 million during the three and nine months ended September 30, 2011, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.9 million during the three and nine months ended September 30, 2012, respectively, and $0.2 million and $0.8 million during the three and nine months ended September 30, 2011, respectively. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our accompanying consolidated statements of operations.

Under the terms of our product supply agreement, the joint venture purchases products from our manufacturing facilities in the U.K. and China. The joint venture in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, 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 $7.1 million and $8.9 million of trade receivables which are included in accounts receivable on our accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively, and $13.7 million and $19.3 million of trade accounts payable which are included in accounts payable on our accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively. During the nine months ended September 30, 2012, we received $6.1 million in cash from SPD as a return of capital.

In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G had the right, for a period of 60 days commencing on May 17, 2011, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G had the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. On July 16, 2011, P&G’s option to require us to acquire its interest in SPD at fair market value expired. In connection with the expiration of the option, we recognized a gain in the amount of approximately $288.9 million during the third quarter of 2011.

(15) Material Contingencies and Legal Settlements

(a) Legal Proceedings

We are not a party to any pending legal proceedings that we currently believe could have a material adverse impact on our sales, operations or financial performance. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

 

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(b) Acquisition-related Contingent Consideration Obligations

The following summarizes our principal contractual acquisition-related contingent consideration obligations as of September 30, 2012 that have changed significantly since December 31, 2011. Other acquisition-related contingent consideration obligations that were presented in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, but which are omitted below, represent those that have not changed significantly since that date.

 

   

AmMed

With respect to AmMed, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational targets within six months of the acquisition date. The maximum amount of the earn-out payment was $2.0 million. The conditions of the earn-out were not achieved and as such no further contingent consideration obligations related to this acquisition exist as of September 30, 2012.

 

   

Amedica

With respect to Amedica, the terms of the acquisition agreement require us to make earn-out payments upon successfully meeting certain financial targets during each of calendar years 2012 and 2013. The maximum amount of the earn-out payments are $6.9 million and $8.1 million for calendar years 2012 and 2013, respectively.

 

   

Capital Toxicology

The initial terms of the acquisition agreement for Capital Toxicology, LLC, provided for an earn-out calculated based on the amount, if any, by which EBITDA derived from the acquired business exceeded specified targets during each of the calendar years 2011 and 2012. A portion of the earn-out for the 2011 calendar year totaling approximately $2.1 million was earned and accrued as of December 31, 2011. During the first quarter of 2012, the acquisition agreement was modified to base the earn-out on the excess of actual cash collections from 2011 sales over 2011 expenses rather than EBITDA. This new criterion resulted in an incremental $2.9 million accrual related to the earn-out for the 2011 calendar year based on cash collections through March 31, 2012. $4.1 million was paid in respect of the earn-out for the 2011 calendar year during the second quarter of 2012. An additional payment of approximately $1.5 million will be made in the fourth quarter of 2012 for the incremental cash collections from 2011 sales received prior to August 31, 2012. The maximum potential remaining amount of the earn-out payments is approximately $8.0 million.

 

   

DiagnosisOne

With respect to DiagnosisOne, 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. The maximum amount of the earn-out payments is $33.0 million.

 

   

Diagnostik

With respect to Diagnostik, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within two years of the acquisition date. The maximum amount of the earn-out payments is approximately €1.4 million (approximately $1.8 million at September 30, 2012).

 

   

eScreen

With respect to eScreen, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets during calendar years 2012 through 2014. The maximum amount of the earn-out payments is $70.0 million.

 

   

MedApps

With respect to MedApps, the terms of the acquisition agreement require us to make earn-out payments upon achievement of certain technological and product development milestones through January 15, 2015. The maximum amount of the earn-out payments is $22.0 million.

 

   

Standing Stone

With respect to Standing Stone, the terms of the acquisition agreement require us to pay earn-outs and employee bonuses upon successfully meeting certain operational, product development and revenue targets during the period from the date of acquisition through calendar year 2013. A cash earn-out payment totaling approximately $5.5 million and employee bonus payments totaling approximately $0.3 million for the achievement of the first two milestones were made during the second quarter of 2012. The maximum remaining amount of the earn-out payments is approximately $5.5 million. The maximum remaining amount of the employee bonuses is $0.3 million.

(c) Acquisition-related Obligations

 

   

Standing Stone

Under the terms of the acquisition agreement we acquired the remaining 19.08% of the issued and outstanding capital stock of Standing Stone, the holders of which were officers and employees of Standing Stone, in May 2012 for an aggregate purchase price of approximately $2.6 million.

 

   

Agreements with Epocal

In November 2009, we entered into a distribution agreement with Epocal, Inc., or Epocal, to distribute the epoc® Blood Analysis System for blood gas and electrolyte testing for $20.0 million, which is recorded on our accompanying consolidated balance sheet in other intangible assets, net. We also entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal for a total potential purchase price of up to $255.0 million, including a base purchase price of up to $172.5 million if Epocal achieves certain gross margin and other financial milestones on or prior to October 31, 2014, plus additional payments of up to $82.5 million if Epocal achieves certain other milestones relating to its gross margin and product development efforts on or prior to this date. The agreement contains a working capital adjustment whereby the purchase price is increased or decreased to the extent that Epocal’s working capital at closing is more or less than a specified amount. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones. The acquisition will also be subject to other closing conditions, including the receipt of any required antitrust or other approvals. In April 2011, we entered into a license agreement with Epocal and amended some of the terms of the definitive agreement to acquire Epocal. The license agreement provides us with royalty-free access to certain Epocal intellectual property for use in our home-use products and provided for an upfront license payment of $18.0 million, which we paid in 2011. The amendment of the definitive agreement increased the working capital target by $18.0 million, which may have the effect of reducing the purchase price of the acquisition. The amendment of the agreement also added an additional potential milestone payment of $8.0 million. As a result, the maximum purchase price under the acquisition agreement increased to $263.0 million.

 

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Table of Contents

(d) FDA Inspection and Office of Inspector General Subpoena

In March 2012, the Food & Drug Administration, or FDA, began an inspection of our San Diego facility related to our Alere Triage products. During the inspection, the FDA expressed concern about the alignment between certain aspects of our labeling for the Alere Triage products and the quality control release specifications that had been in effect prior to the inspection. As a result and as previously disclosed, we implemented two recalls of Alere Triage products during the second quarter of 2012, as well as interim quality control release specifications. In June 2012, the FDA closed the inspection, and we received inspectional observations on FDA Form 483. In July 2012, we provided the FDA with a detailed response to its inspectional observations which included a plan for how we proposed to address each observation as well as a timeline for doing so. Since submitting this response, we have been working diligently to address each of these observations. Also, on or about September 28, 2012, we agreed with the FDA on a set of final release specifications for our Alere Triage meter-based products that further align the product release specifications to the package insert.

On October 9, 2012, we received a warning letter from the FDA citing the same inspectional observations set forth in the FDA Form 483 received in June. The warning letter, which was subsequently reissued as of October 22, 2012, acknowledged our July response but did not take into account the timeline that we had proposed or any of our efforts taken after our July response. On October 30, 2012, we responded to the warning letter and submitted evidence of our completion of most of the actions detailed in our July response, including all of the actions then due under our timeline. We will continue to provide the FDA with further periodic updates on the status of the actions that remain to be completed over the next several months to fully address the issues that the FDA has identified.

As we anticipated, the final release specifications agreed to with the FDA for our Alere Triage products have resulted in lower manufacturing yields for those products. While we continue to make significant progress in controlling our manufacturing process to improve overall yields, we also continue to expand our manufacturing capacity to address the lower yield rates. These efforts, as well as our efforts to address the FDA’s observations set forth in the FDA Form 483 and the warning letter, have increased our manufacturing costs and reduced our margins on these products.

Also, in May 2012, we received a subpoena from the Office of Inspector General of the Department of Health and Human Services. The subpoena seeks documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the government and are in the process of responding to the subpoena.

We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with these matters. Also, except for increases in manufacturing costs and decreased profitability for our Alere Triage products, we are unable to predict what impact, if any, these matters or ensuing proceedings, if any, will have on our financial condition, results of operations or cash flows.

(16) 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.

Recently Issued Standards

In July 2012, the FASB issued Accounting Standards Update, or ASU, No. 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, or ASU 2012-02. ASU 2012-02 allows an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The adoption of this standard is not expected to have a material impact on our financial position, results of operations, comprehensive income or cash flows.

Recently Adopted Standards

Effective January 1, 2012, we adopted ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing for Goodwill Impairment, or ASU 2011-08. ASU 2011-08 allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. This update does not change the current guidance for testing other indefinite-lived intangible assets for impairment. The adoption of this standard did not have an impact on our financial position, results of operations, comprehensive income or cash flows.

 

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Table of Contents

Effective January 1, 2012, we adopted ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, or ASU 2011-05. ASU 2011-05 (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not affect how earnings per share is calculated or presented. Effective January 1, 2012, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, or ASU 2011-12. As these accounting standards only require enhanced disclosure, the adoption of these standards did not impact our financial position, results of operations, comprehensive income or cash flows.

Effective January 1, 2012, we adopted ASU No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards.

(17) Equity Investments

We account for the results from our equity investments under the equity method of accounting in accordance with 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) Axis-Shield

During the third quarter of 2011, we acquired, in various transactions, approximately 15.0 million shares of Axis-Shield, which represented a 29.9% ownership interest in Axis-Shield as of September 30, 2011. Our equity earnings attributable to this investment for the third quarter of 2011 were immaterial. During the fourth quarter of 2011, we acquired a controlling interest of Axis-Shield.

(b) SPD

In May 2007, we completed the formation of SPD, our 50/50 joint venture with 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 SPD, we ceased to consolidate the operating results of our consumer diagnostics business related to SPD. We recorded earnings of $2.1 million and $8.2 million during the three and nine months ended September 30, 2012, respectively, and we recorded earnings of $3.6 million and $3.0 million during the three and nine months ended September 30, 2011, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods.

(c) TechLab

In May 2006, we acquired 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 $0.6 million and $1.8 million during the three and nine months ended September 30, 2012, respectively, and we recorded earnings of $0.3 million and $1.5 million during the three and nine months ended September 30, 2011, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective periods.

 

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Table of Contents

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

Combined Condensed Results of Operations:

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
 
     2012      2011      2012      2011  

Net revenue

   $ 54,650       $ 61,358       $ 165,483       $ 178,180   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

   $ 34,411       $ 38,294       $ 105,175       $ 110,659   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income after taxes

   $ 5,399       $ 7,858       $ 20,083       $ 9,142   
  

 

 

    

 

 

    

 

 

    

 

 

 

Combined Condensed Balance Sheets:

 

     September 30, 2012      December 31, 2011  

Current assets

   $ 84,101       $ 84,376   

Non-current assets

     38,806         37,659   
  

 

 

    

 

 

 

Total assets

   $ 122,907       $ 122,035   
  

 

 

    

 

 

 

Current liabilities

   $ 43,025       $ 49,453   

Non-current liabilities

     7,355         6,326   
  

 

 

    

 

 

 

Total liabilities

   $ 50,380       $ 55,779   
  

 

 

    

 

 

 

(18) Guarantor Financial Information

Our 9% senior subordinated notes due 2016, our 7.875% senior notes due 2016, and our 8.625% senior subordinated notes due 2018 are guaranteed by certain of our consolidated wholly 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, 2012 and December 31, 2011, the related statements of operations and statements of comprehensive income for each of the three and nine months ended September 30, 2012 and 2011, respectively, and the statements of cash flows for the nine months ended September 30, 2012 and 2011, 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.

 

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Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2012

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 214,136      $ 287,717      $ (42,040   $ 459,813   

Services revenue

     —          148,897        77,518        —          226,415   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          363,033        365,235        (42,040     686,228   

License and royalty revenue

     —          (4,958     4,914        5,232        5,188   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          358,075        370,149        (36,808     691,416   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     928        103,415        156,602        (37,333     223,612   

Cost of services revenue

     —          81,134        41,239        (2,242     120,131   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     928        184,549        197,841        (39,575     343,743   

Cost of license and royalty revenue

     —          —          (3,334     5,232        1,898   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     928        184,549        194,507        (34,343     345,641   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (928     173,526        175,642        (2,465     345,775   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     6,292        17,088        17,182        —          40,562   

Sales and marketing

     1,220        74,871        84,553        —          160,644   

General and administrative

     11,392        42,706        51,739        —          105,837   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     18,904        134,665        153,474        —          307,043   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (19,832     38,861        22,168        (2,465     38,732   

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

     (54,324     (9,205     (2,856     11,524        (54,861

Other income (expense), net

     1,534        8,298        620        (11,524     (1,072
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     (72,622     37,954        19,932        (2,465     (17,201

Provision (benefit) for income taxes

     (27,401     5,099        12,558        (933     (10,677
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities, net of tax

     (45,221     32,855        7,374        (1,532     (6,524

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

     41,052        (230     —          (40,822     —     

Equity earnings of unconsolidated entities, net of tax

     652        —          2,405        (50     3,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (3,517     32,625        9,779        (42,404     (3,517

Less: Net income attributable to non-controlling interests

     —          —          286        —          286   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (3,517     32,625        9,493        (42,404     (3,803

Preferred stock dividends

     (5,352     —          —          —          (5,352
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (8,869   $ 32,625      $ 9,493      $ (42,404   $ (9,155
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2011

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 227,479      $ 224,801      $ (34,026   $ 418,254   

Services revenue

     —          144,641        17,625        —          162,266   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          372,120        242,426        (34,026     580,520   

License and royalty revenue

     —          1,728        4,475        (954     5,249   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          373,848        246,901        (34,980     585,769   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     1,097        100,514        127,086        (34,798     193,899   

Cost of services revenue

     —          77,828        6,349        —          84,177   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     1,097        178,342        133,435        (34,798     278,076   

Cost of license and royalty revenue

     —          —          2,685        (954     1,731   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     1,097        178,342        136,120        (35,752     279,807   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (1,097     195,506        110,781        772        305,962   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

          

Research and development

     5,063        16,195        13,514        —          34,772   

Sales and marketing

     1,973        78,667        53,736        —          134,376   

General and administrative

     7,424        52,300        32,171        —          91,895   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,460        147,162        99,421        —          261,043   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (15,557     48,344        11,360        772        44,919   

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

     (46,857     (13,418     (4,240     17,188        (47,327

Other income (expense), net

     4,055        14,889        (10,006     (17,188     (8,250

Gain on sale of joint venture interest

     16,309        —          272,587        —          288,896   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (42,050     49,815        269,701        772        278,238   

Provision (benefit) for income taxes

     (2,010     19,156        25,475        31        42,652   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (40,040     30,659        244,226        741        235,586   

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

     279,392        (24     —          (279,368     —     

Equity earnings of unconsolidated entities, net of tax

     352        —          3,772        (6     4,118   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     239,704        30,635        247,998        (278,633     239,704   

Less: Net income attributable to non-controlling interests

     —          —          138        —          138   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     239,704        30,635        247,860        (278,633     239,566   

Preferred stock dividends

     (5,358     —          —          —          (5,358
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 234,346      $ 30,635      $ 247,860      $ (278,633   $ 234,208   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2012

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 635,601      $ 868,231      $ (104,807   $ 1,399,025   

Services revenue

     —          447,886        204,818        —          652,704   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          1,083,487        1,073,049        (104,807     2,051,729   

License and royalty revenue

     —          8,807        10,191        (7,665     11,333   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          1,092,294        1,083,240        (112,472     2,063,062   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     2,635        301,488        466,994        (99,453     671,664   

Cost of services revenue

     —          238,528        95,264        (2,242     331,550   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     2,635        540,016        562,258        (101,695     1,003,214   

Cost of license and royalty revenue

     —          —          13,059        (7,665     5,394   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     2,635        540,016        575,317        (109,360     1,008,608   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (2,635     552,278        507,923        (3,112     1,054,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     17,361        50,850        51,798        —          120,009   

Sales and marketing

     3,096        229,649        245,799        —          478,544   

General and administrative

     37,590        147,677        162,490        —          347,757   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     58,047        428,176        460,087        —          946,310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (60,682     124,102        47,836        (3,112     108,144   

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

     (158,009     (31,090     (10,054     38,034        (161,119

Other income (expense), net

     (2,552     33,563        21,593        (38,034     14,570   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     (221,243     126,575        59,375        (3,112     (38,405

Provision (benefit) for income taxes

     (74,149     40,637        21,870        (979     (12,621
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity earnings of unconsolidated entities, net of tax

     (147,094     85,938        37,505        (2,133     (25,784

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

     129,929        (763     —          (129,166     —     

Equity earnings of unconsolidated entities, net of tax

     1,798        —          8,643        (24     10,417   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (15,367     85,175        46,148        (131,323     (15,367

Less: Net income attributable to non-controlling interests

     —          —          137        —          137   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (15,367     85,175        46,011        (131,323     (15,504

Preferred stock dividends

     (15,940     —          —          —          (15,940
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (31,307   $ 85,175      $ 46,011      $ (131,323   $ (31,444
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2011

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 681,711      $ 639,574      $ (96,983   $ 1,224,302   

Services revenue

     —          443,173        50,220        —          493,393   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          1,124,884        689,794        (96,983     1,717,695   

License and royalty revenue

     —          6,948        15,028        (4,253     17,723   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          1,131,832        704,822        (101,236     1,735,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     2,526        308,920        359,500        (97,027     573,919   

Cost of services revenue

     —          232,463        18,925        —          251,388   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     2,526        541,383        378,425        (97,027     825,307   

Cost of license and royalty revenue

     —          —          9,467        (4,253     5,214   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     2,526        541,383        387,892        (101,280     830,521   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (2,526     590,449        316,930        44        904,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     15,041        49,865        47,756        —          112,662   

Sales and marketing

     2,922        245,481        159,570        —          407,973   

General and administrative

     35,797        172,127        84,360        —          292,284   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     53,760        467,473        291,686        —          812,919   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (56,286     122,976        25,244        44        91,978   

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

     (108,308     (88,472     (12,472     55,058        (154,194

Other income (expense), net

     9,761        41,377        (1,557     (55,058     (5,477

Gain on sale of joint venture interest

     16,309        —          272,587        —          288,896   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (138,524     75,881        283,802        44        221,203   

Provision (benefit) for income taxes

     (67,593     33,211        30,062        (94     (4,414
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (70,931     42,670        253,740        138        225,617   

Equity in earnings of subsidiaries, net of tax

     299,961        631        —          (300,592     —     

Equity earnings of unconsolidated entities, net of tax

     1,509        —          3,420        (7     4,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     230,539        43,301        257,160        (300,461     230,539   

Less: Net income attributable to non-controlling interests

     —          —          160        —          160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     230,539        43,301        257,000        (300,461     230,379   

Preferred stock dividends

     (16,682     —          —          —          (16,682

Preferred stock repurchase

     23,936        —          —          —          23,936   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 237,793      $ 43,301      $ 257,000      $ (300,461   $ 237,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended September 30, 2012

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (3,517   $ 32,625       $ 9,779      $ (42,404   $ (3,517
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

           

Changes in cumulative translation adjustment

     132        1        36,027        3,535        39,695   

Unrealized gains on available for sale securities

     141        —           —          —          141   

Unrealized gains on hedging instruments

     —          —           10        —          10   

Minimum pension liability adjustment

     —          —           (98     —          (98
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     273        1        35,939        3,535        39,748   

Income tax provision related to items of other comprehensive income

     360       —           —          —          360  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (87     1         35,939        3,535        39,388   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (3,604     32,626         45,718        (38,869     35,871   

Less: Comprehensive income attributable to non-controlling interests

     —          —           286        —          286   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ (3,604   $ 32,626       $ 45,432      $ (38,869   $ 35,585   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2011

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income

   $ 239,704      $ 30,635      $ 247,998      $ (278,633   $ 239,704   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax:

          

Changes in cumulative translation adjustment

     (877     (147     (46,635     (9,078     (56,737

Unrealized losses on available for sale securities

     (230     —          (395     —          (625

Unrealized losses on hedging instruments

     (87     —          —          —          (87

Minimum pension liability adjustment

     —          —          246        —          246   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax

     (1,194     (147     (46,784     (9,078     (57,203

Income tax benefit related to items of other comprehensive income

     (34     —          (145 )     —          (179
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (1,160     (147     (46,639     (9,078     (57,024
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     238,544        30,488        201,359        (287,711     182,680   

Less: Comprehensive income attributable to non-controlling interests

     —          —          138        —          138   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 238,544      $ 30,488      $ 201,221      $ (287,711   $ 182,542   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2012

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (15,367   $ 85,175       $ 46,148      $ (131,323   $ (15,367
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

           

Changes in cumulative translation adjustment

     (100     78         36,756        2,123        38,857   

Unrealized gains on available for sale securities

     926        —           5        —          931   

Unrealized gains on hedging instruments

     17        —           448        —          465   

Minimum pension liability adjustment

     —          —           (218     —          (218
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     843        78         36,991        2,123        40,035   

Income tax provision related to items of other comprehensive income

     360       —           —          —          360  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     483        78         36,991        2,123        39,675   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (14,884     85,253         83,139        (129,200     24,308   

Less: Comprehensive income attributable to non-controlling interests

     —          —           137        —          137   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ (14,884   $ 85,253       $ 83,002      $ (129,200   $ 24,171   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2011

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income

   $ 230,539      $ 43,301       $ 257,160      $ (300,461   $ 230,539   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

           

Changes in cumulative translation adjustment

     2        26         (14,436     (3,708     (18,116

Unrealized losses on available for sale securities

     (163     —           (781     —          (944

Unrealized gains on hedging instruments

     11,901        —           —          —          11,901   

Minimum pension liability adjustment

     —          —           326        —          326   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     11,740        26         (14,891     (3,708     (6,833

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

     4,630        —           (197     —          4,433   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     7,110        26        (14,694     (3,708 )     (11,266
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

     237,649        43,327         242,466        (304,169     219,273   

Less: Comprehensive income attributable to non-controlling interests

     —          —           160        —          160   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 237,649      $ 43,327       $ 242,306      $ (304,169   $ 219,113   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

CONSOLIDATING BALANCE SHEET

September 30, 2012

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 329      $ 54,143      $ 247,782       $ —        $ 302,254   

Restricted cash

     —          1,579        1,637         —          3,216   

Marketable securities

     —          784        113         —          897   

Accounts receivable, net of allowances

     —          196,992        311,599         —          508,591   

Inventories, net

     —          129,367        211,718         (8,573     332,512   

Deferred tax assets

     (20,577     22,261        5,624         2,885        10,193   

Receivable from joint venture, net

     —          1,846        2,171         —          4,017   

Prepaid expenses and other current assets

     345,055        (274,064     68,073         (25     139,039   

Intercompany receivables

     386,441        488,163        81,007         (955,611     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     711,248        621,071        929,724         (961,324     1,300,719   

Property, plant and equipment, net

     2,114        267,557        247,560         (417     516,814   

Goodwill

     —          1,528,228        1,503,861         —          3,032,089   

Other intangible assets with indefinite lives

     —          7,100        50,381         —          57,481   

Finite-lived intangible assets, net

     27,242        887,966        970,028         —          1,885,236   

Deferred financing costs, net and other non-current assets

     80,769        5,662        10,655         (55     97,031   

Receivable from joint venture, net of current portion

     —          —          14,533         —          14,533   

Investments in subsidiaries

     3,598,821        50,204        2,809         (3,651,834     —     

Investments in unconsolidated entities

     34,792        —          59,229         —          94,021   

Marketable securities

     3,181        —          —           —          3,181   

Deferred tax assets

     —          —          11,576         —          11,576   

Intercompany notes receivable

     2,124,101        794,610        6,751         (2,925,462     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 6,582,268      $ 4,162,398      $ 3,807,107       $ (7,539,092   $ 7,012,681   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY            

Current liabilities:

           

Current portion of long-term debt

   $ 45,000      $ —        $ 7,486       $ —        $ 52,486   

Current portion of capital lease obligations

     —          2,605        3,769         —          6,374   

Accounts payable

     10,665        52,749        99,754         —          163,168   

Accrued expenses and other current liabilities

     75,888        115,032        235,232         (598     425,554   

Intercompany payables

     491,222        125,491        338,897         (955,610     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     622,775        295,877        685,138         (956,208     647,582   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     3,504,811        —          22,768         —          3,527,579   

Capital lease obligations, net of current portion

     —          4,734        8,977         —          13,711   

Deferred tax liabilities

     (38,630     266,120        185,769         549        413,808   

Other long-term liabilities

     22,600        38,042        117,819         (55     178,406   

Intercompany notes payables

     241,421        1,548,960        1,135,081         (2,925,462     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,730,202        1,857,856        1,470,414         (2,924,968     4,133,504   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Stockholders’ equity

     2,229,291        2,008,665        1,649,251         (3,657,916     2,229,291   

Non-controlling interests

     —          —          2,304         —          2,304   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     2,229,291        2,008,665        1,651,555         (3,657,916     2,231,595   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 6,582,268      $ 4,162,398      $ 3,807,107       $ (7,539,092   $ 7,012,681   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

36


Table of Contents

CONSOLIDATING BALANCE SHEET

December 31, 2011

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 12,451      $ 85,838      $ 200,884       $ —        $ 299,173   

Restricted cash

     —          1,591        7,396         —          8,987   

Marketable securities

     —          770        316         —          1,086   

Accounts receivable, net of allowances

     —          199,547        276,277         —          475,824   

Inventories, net

     —          136,091        189,886         (5,708     320,269   

Deferred tax assets

     10,912        22,813        7,266         1,984        42,975   

Receivable from joint venture, net

     —          2,301        202         —          2,503   

Prepaid expenses and other current assets

     (74,078     138,329        78,659         —          142,910   

Intercompany receivables

     397,914        426,136        27,871         (851,921     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     347,199        1,013,416        788,757         (855,645     1,293,727   

Property, plant and equipment, net

     2,542        274,588        214,206         (131     491,205   

Goodwill

     —          1,530,324        1,295,791         (4,844     2,821,271   

Other intangible assets with indefinite lives

     —          7,100        62,446         —          69,546   

Finite-lived intangible assets, net

     28,685        1,011,852        745,388         —          1,785,925   

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

     88,153        5,532        4,101         —          97,786   

Receivable from joint venture, net of current portion

     —          —          15,455         —          15,455   

Investments in subsidiaries

     3,586,625        32,512        3,005         (3,622,142     —     

Investments in unconsolidated entities

     29,021        —          56,117         —          85,138   

Marketable securities

     2,254        —          —           —          2,254   

Deferred tax assets

     —          —          10,394         —          10,394   

Intercompany notes receivable

     1,934,366        (196,820     —           (1,737,546     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 6,018,845      $ 3,678,504      $ 3,195,660       $ (6,220,308   $ 6,672,701   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY            

Current liabilities:

           

Current portion of long-term debt

   $ 43,000      $ —        $ 18,092       $ —        $ 61,092   

Current portion of capital lease obligations

     —          1,550        4,533         —          6,083   

Short-term debt

     6,240        —          —           —          6,240   

Accounts payable

     6,704        53,978        94,782         —          155,464   

Accrued expenses and other current liabilities

     (259,010     455,366        199,217         —          395,573   

Intercompany payables

     429,644        104,257        318,018         (851,919     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     226,578        615,151        634,642         (851,919     624,452   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     3,243,341        —          24,110         —          3,267,451   

Capital lease obligations, net of current portion

     —          2,175        10,454         —          12,629   

Deferred tax liabilities

     (25,936     303,837        102,730         69        380,700   

Other long-term liabilities

     24,407        47,135        81,856         —          153,398   

Intercompany notes payables

     321,221        658,573        754,650         (1,734,444     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,563,033        1,011,720        973,800         (1,734,375     3,814,178   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Redeemable non-controlling interest

     —          —          2,497         —          2,497   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Stockholders’ equity

     2,229,234        2,051,633        1,582,381         (3,634,014     2,229,234   

Non-controlling interests

     —          —          2,340         —          2,340   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     2,229,234        2,051,633        1,584,721         (3,634,014     2,231,574   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 6,018,845      $ 3,678,504      $ 3,195,660       $ (6,220,308   $ 6,672,701   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

37


Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2012

(in thousands)

 

    Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flows from Operating Activities:

         

Net income (loss)

  $ (15,367   $ 85,175      $ 46,148      $ (131,323   $ (15,367

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

         

Equity in earnings of subsidiaries, net of tax

    (129,929     763        —          129,166        —     

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

    15,929        158        —          —          16,087   

Depreciation and amortization

    4,314        168,622        149,416        19        322,371   

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

    —          1,400        3,281        —          4,681   

Non-cash stock-based compensation expense

    3,119        4,309        4,440        —          11,868   

Impairment of inventory

    —          5        290        —          295   

Impairment of long-lived assets

    —          219        55        —          274   

(Gain) loss on sale of property, plant and equipment

    3        (4,037     (160     —          (4,194

Equity earnings of unconsolidated entities, net of tax

    (1,798     —          (8,643     24        (10,417

Deferred income taxes

    20,901        (35,762     (27,855     (903     (43,619

Other non-cash items

    (1,156     685        6,207        —          5,736   

Changes in assets and liabilities, net of acquisitions:

         

Accounts receivable, net

    —          2,555        (10,816     —          (8,261

Inventories, net

    —          4,829        (23,251     2,826        (15,596

Prepaid expenses and other current assets

    (419,146     412,393        10,899        25        4,171   

Accounts payable

    3,961        (685     (20,019     —          (16,743

Accrued expenses and other current liabilities

    354,452        (338,933     9,181        (584     24,116   

Other non-current liabilities

    (7,158     (6,676     (8,233     428        (21,639

Intercompany payable (receivable)

    297,741        (287,831     (7,787     (2,123     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    125,866        7,189        123,153        (2,445     253,763   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

         

Decrease in restricted cash

    —          12        5,759        —          5,771   

Purchases of property, plant and equipment

    (308     (58,785     (104,618     66,402        (97,309

Proceeds from sale of property, plant and equipment

    (841     22,230        66,281        (65,287     22,383   

Cash paid for acquisitions, net of cash acquired

    (364,731     —          (20,049     —          (384,780

Cash received from sales of marketable securities

    —          57        214        —          271   

Net cash received from equity method investments

    490        —          6,066        —          6,556   

(Increase) decrease in other assets

    (10,028     (1,401     2,061        55        (9,313
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    (375,418     (37,887     (44,286     1,170        (456,421
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

         

Cash paid for financing costs

    (2,313     —          —          —          (2,313

Cash paid for contingent purchase price consideration

    (16,248     —          —          —          (16,248

Proceeds from issuance of common stock, net of issuance costs

    14,260        —          —          —          14,260   

Proceeds from issuance of long-term debt

    198,000        —          288        —          198,288   

Payments on long-term debt

    (33,250     —          (9,303     —          (42,553

Net proceeds (payments) under revolving credit facilities

    97,500        —          (6,338     —          91,162   

Payments on short-term debt

    (6,240     —          —          —          (6,240

Cash paid for dividends

    (15,970     —          —          —          (15,970

Excess tax benefits on exercised stock options

    183        74        20        —          277   

Principal payments on capital lease obligations

    —          (1,402     (3,523     —          (4,925

Other

    —          —          (2,811     —          (2,811
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    235,922        (1,328     (21,667     —          212,927   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

    1,508        331        (10,302     1,275        (7,188
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    (12,122     (31,695     46,898        —          3,081   

Cash and cash equivalents, beginning of period

    12,451        85,838        200,884        —          299,173   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ 329      $ 54,143      $ 247,782      $ —        $ 302,254   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2011

(in thousands)

 

    Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flows from Operating Activities:

         

Net income

  $ 230,539      $ 43,301      $ 257,160      $ (300,461   $ 230,539   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

         

Equity in earnings of subsidiaries, net of tax

    (299,961     (631     —          300,592        —     

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

    8,630        23,678        418        —          32,726   

Depreciation and amortization

    2,650        191,197        93,487        (301     287,033   

Non-cash stock-based compensation expense

    4,565        6,354        5,356        —          16,275   

Impairment of inventory

    —          172        273        —          445   

Impairment of long-lived assets

    2        1,331        341        —          1,674   

Impairment of intangible assets

    —          2,935        3        —          2,938   

Gain on sale of joint venture interest

    (16,309     —          (272,587     —          (288,896

(Gain) loss on sale of fixed assets

    75        1,132        (111     —          1,096   

Gain on sales of marketable securities

    —          —          (376     —          (376

Equity earnings of unconsolidated entities, net of tax

    (1,509     —          (3,420     7        (4,922

Deferred income taxes

    6,270        (45,374     8,203        (98     (30,999

Other non-cash items

    (2,774     3,080        (8,421     —          (8,115

Changes in assets and liabilities, net of acquisitions:

         

Accounts receivable, net

    —          (8,061     (22,771     —          (30,832

Inventories, net

    —          437        (17,431     (19     (17,013

Prepaid expenses and other current assets

    (2,333     763        (15,794     —          (17,364

Accounts payable

    3,201        (29     8,805        —          11,977   

Accrued expenses and other current liabilities

    (27,881     73,020        19,335        2,295        66,769   

Other non-current liabilities

    (5,455     2,995        (27,988     —          (30,448

Intercompany payable (receivable)

    (1,393,133     925,802        467,331        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    (1,493,423     1,222,102        491,813        2,015        222,507   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

         

Decrease (increase) in restricted cash

    —          160        (347,130     —          (346,970

Purchases of property, plant and equipment

    (1,148     (48,335     (45,431     222        (94,692

Proceeds from sale of property, plant and equipment

    —          293        553        —          846   

Proceeds from disposition of business

    —          —          11,491        —          11,491   

Cash paid for acquisitions, net of cash acquired

    (39,007     (5,400     (82,674     —          (127,081

Proceeds from sales of marketable securities

    268        190        7,934        —          8,392   

Net cash received from equity method investments

    (2,920     —          (41,182     —          (44,102

Increase in other assets

    (31,824     (15,878     (5,133     (3,053     (55,888
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (74,631     (68,970     (501,572     (2,831     (648,004
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

         

Cash paid for financing costs

    (65,813     (525     —          —          (66,338

Cash paid for contingent purchase price consideration

    (25,305     —          —          —          (25,305

Proceeds from issuance of common stock, net of issuance costs

    24,159        —          —          —          24,159   

Repurchase of preferred stock

    (99,068     —          —          —          (99,068

Proceeds from long-term debt

    1,750,000        937        1,771        —          1,752,708   

Payments on long-term debt

    —          (1,192,344     (2,993     —          (1,195,337

Net proceeds under revolving credit facilities

    100,000        —          4,808        —          104,808   

Repurchase of common stock

    (184,867     —          —          —          (184,867

Excess tax benefits on exercised stock options

    1,403        429        351        —          2,183   

Principal payments on capital lease obligations

    —          (1,783     (1,301     —          (3,084

Other

    (10,251     —          (200     —          (10,451
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    1,490,258        (1,193,286     2,436        —          299,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

    (102     27        796        816        1,537   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

    (77,898     (40,127     (6,527     —          (124,552

Cash and cash equivalents, beginning of period

    101,666        116,112        183,528        —          401,306   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ 23,768      $ 75,985      $ 177,001      $ —        $ 276,754   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report 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. You can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition or state other “forward-looking” information. Forward-looking statements in this item include, without limitation, statements regarding anticipated expansion and growth in certain of our product and service offerings, the impact of our research and development activities, potential new product and technology achievements, the potential for selective acquisitions, our ability to improve our working capital and operating margins, our expectations with respect to Apollo, our integrated health management technology platform, our ability to improve care and lower healthcare costs for both providers and patients, our predictions regarding the regulatory matters relating to our Triage products and the resulting financial consequences, the impact of recent and planned changes to our quality control release specifications, our predictions regarding our ability to meet customer demand, and our funding plans for our future working capital needs and commitments. Actual results or developments could differ materially from those projected in such statements as a result of numerous factors, including, without limitation, those risks and uncertainties set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011 and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements. This report and, in particular, the following discussion and analysis of our financial condition and results of operations, should be read in light of those risks and uncertainties and in conjunction with our accompanying consolidated financial statements and notes thereto.

Overview

We enable individuals to take charge of improving their health and quality of life at home, under medical supervision, by developing new capabilities in near-patient diagnosis, monitoring and health management. Our global, leading products and services, as well as our new product development efforts, currently focus on cardiology, infectious disease, toxicology, diabetes, oncology and women’s health. We are continuing to expand our product and service offerings in all of these categories.

As a global, leading supplier of near-patient monitoring tools, as well as value-added healthcare services, we are well positioned to improve care and lower healthcare costs for both providers and patients. Our home coagulation monitoring business, which supports doctors’ and patients’ efforts to monitor warfarin therapy using our INRatio blood coagulation monitoring system, continues to represent an early example of this. We have also continued to introduce our integrated health management technology platform, called Apollo, to our customers since its launch on January 1, 2010. Using a sophisticated data engine for acquiring and analyzing information, combined with a state of the art touch engine for communicating with individuals and their health partners, we expect Apollo to benefit healthcare providers, health insurers and patients alike by enabling more efficient and effective health management programs.

We have continued to grow through strategic acquisitions. With our November 2011 acquisitions of Axis-Shield plc, or Axis-Shield, and Arriva Medical, LLC, we have entered the diabetes diagnostics market, and we expect our presence in this field to grow. We also continued to expand our toxicology business, particularly in the growing market for pain management and medication monitoring services. We have also acquired software solutions that will further our efforts to connect healthcare providers with point of care and other patient data.

We have also continued to lay the groundwork for future revenue and earnings growth by focusing our efforts on new product development and introductions. Our important new product offerings, including the epoc System, the Alere CD4 Analyzer and the Alere Heart Check System, have begun to penetrate the markets into which they have been launched, and we expect this trend to continue. We are also focused on expanding our global sales force. We also continued to build awareness and acceptance for our two novel biomarkers, NGAL and placental growth factor, or PLGF.

FDA and OIG Matters Relating to Alere Triage Products

In March 2012, the Food & Drug Administration, or FDA, began an inspection of our San Diego facility related to our Alere Triage products. During the inspection, the FDA expressed concern about the alignment between certain aspects of our labeling for the Alere Triage products and the quality control release specifications that had been in effect prior to the inspection. As a result and as previously disclosed, we implemented two recalls of Alere Triage products during the second quarter of 2012, as well as interim quality control release specifications. In June 2012, the FDA closed the inspection, and we received inspectional observations on FDA Form 483. In July 2012, we provided the FDA with a detailed response to its inspectional observations which included a plan for how

 

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we proposed to address each observation as well as a timeline for doing so. Since submitting this response, we have been working diligently to address each of these observations. Also, on or about September 28, 2012, we agreed with the FDA on a set of final release specifications for our Alere Triage meter-based products that further align the product release specifications to the package insert.

On October 9, 2012, we received a warning letter from the FDA citing the same inspectional observations set forth in the FDA Form 483 received in June. The warning letter, which was subsequently reissued as of October 22, 2012, acknowledged our July response but did not take into account the timeline that we had proposed or any of our efforts taken after our July response. On October 30, 2012, we responded to the warning letter and submitted evidence of our completion of most of the actions detailed in our July response, including all of the actions then due under our timeline. We will continue to provide the FDA with further periodic updates on the status of the actions that remain to be completed over the next several months to fully address the issues that the FDA has identified. We intend to continue to work diligently to address all of the FDA’s inspectional observations, but we cannot provide any assurance that the FDA will find our efforts satisfactory.

As we anticipated, the final release specifications agreed to with the FDA for our Alere Triage products have resulted in lower manufacturing yields for those products. While we continue to make significant progress in controlling our manufacturing process to improve overall yields, we also continue to expand our manufacturing capacity to address the lower yield rates. These efforts, as well as our efforts to address the FDA’s observations set forth in the FDA Form 483 and the warning letter, have increased our manufacturing costs and reduced our margins on these products.

Also, in May 2012, we received a subpoena from the Office of Inspector General of the Department of Health and Human Services. The subpoena seeks documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the government and are in the process of responding to the subpoena.

We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with these matters. Also, except for increases in manufacturing costs and decreased profitability for our Alere Triage products, we are unable to predict what impact, if any, these matters or ensuing proceedings, if any, will have on our financial condition, results of operations or cash flows. Please see Part II, Item 1A, “Risk Factors” for a further discussion of the risks to our business, financial condition and results of operations arising from these matters.

Financial Highlights

 

   

Net revenue increased by $105.6 million, or 18%, to $691.4 million for the three months ended September 30, 2012, from $585.8 million for the three months ended September 30, 2011. Net revenue increased by $327.6 million, or 19%, to $2.1 billion for the nine months ended September 30, 2012, from $1.7 billion for the nine months ended September 30, 2011.

 

   

Gross profit increased by $39.8 million, or 13%, to $345.8 million for the three months ended September 30, 2012, from $306.0 million for the three months ended September 30, 2011. Gross profit increased by $149.6 million, or 17%, to $1.1 billion for the nine months ended September 30, 2012, from $904.9 million for the nine months ended September 30, 2011.

 

   

For the three months ended September 30, 2012, we generated a net loss available to common stockholders of $9.2 million, or $0.11 per basic common share. For the three months ended September 30, 2011, we generated net income available to common stockholders of $234.2 million, or $2.48 per diluted common share. For the nine months ended September 30, 2012, we generated a net loss available to common stockholders of $31.4 million, or $0.39 per basic common share. For the nine months ended September 30, 2011, we generated net income available to common stockholders of $237.6 million, or $2.56 per diluted common share.

 

   

During the third quarter of 2011, the Procter & Gamble Company’s, or P&G’s, option to require us to acquire its interest in SPD at fair market value expired. In connection with the expiration of the option, we recognized a gain totaling approximately $288.9 million during the third quarter of 2011.

Results of Operations

Results excluding the impact of currency translation are calculated on the basis of local currency results, using foreign currency exchange rates applicable to the earlier comparative period. We believe presenting information using the same foreign currency exchange rates helps investors isolate the impact of changes in those rates from other trends. Our results of operations were as follows:

Net Product Sales and Services Revenue, Total and by Business Segment. Net product sales and services revenue increased by $105.7 million, or 18%, to $686.2 million for the three months ended September 30, 2012, from $580.5 million for the three months ended September 30, 2011. Excluding the impact of currency translation, net product sales and services revenue for the three months ended September 30, 2012 increased by $119.9 million, or 21%, compared to the three months ended September 30, 2011. Net product sales and services revenue increased by $334.0 million, or 19%, to $2.1 billion for the nine months ended

 

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September 30, 2012, from $1.7 billion for the nine months ended September 30, 2011. Excluding the impact of currency translation, net product sales and services revenue for the nine months ended September 30, 2012 increased by $365.5 million, or 21%, compared to the nine months ended September 30, 2011. Net product sales and services revenue by business segment for the three and nine months ended September 30, 2012 and 2011 are as follows (in thousands):

 

     Three Months Ended
September 30,
     %
Change
    Nine Months Ended
September 30,
     %
Change
 
     2012      2011        2012      2011     

Professional diagnostics

   $ 528,754       $ 426,251         24   $ 1,581,076       $ 1,240,251         27

Health management

     135,078         129,931         4     404,452         408,566         (1 )% 

Consumer diagnostics

     22,396         24,338         (8 )%      66,201         68,878         (4 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

Net product sales and services revenue

   $ 686,228       $ 580,520         18   $ 2,051,729       $ 1,717,695         19
  

 

 

    

 

 

      

 

 

    

 

 

    

Professional Diagnostics

The following table summarizes our net product sales and services revenue from our professional diagnostics business segment by groups of similar products and services for the three and nine months ended September 30, 2012 and 2011 (in thousands):

 

     Three Months  Ended
September 30,
     %     Nine Months  Ended
September 30,
     %  
     2012      2011      Change     2012      2011      Change  

Cardiology

   $ 122,372       $ 127,943         (4 )%    $ 386,795       $ 390,652         (1 )% 

Infectious disease

     136,561         142,639         (4 )%      425,398         405,559         5

Toxicology

     156,074         93,497         67     437,736         267,834         63

Diabetes

     35,670         —           N/A        100,628         —           N/A   

Other

     78,077         62,172         26     230,519         176,206         31
  

 

 

    

 

 

      

 

 

    

 

 

    

Professional diagnostics net product sales and services revenue

   $ 528,754       $ 426,251         24   $ 1,581,076       $ 1,240,251         27
  

 

 

    

 

 

      

 

 

    

 

 

    

Net product sales and services revenue from our professional diagnostics business segment increased by $102.5 million, or 24%, to $528.8 million for the three months ended September 30, 2012, from $426.3 million for the three months ended September 30, 2011. Excluding the impact of currency translation, net product sales and services revenue from our professional diagnostics business segment increased by $116.5 million, or 27%, comparing the three months ended September 30, 2012 to the three months ended September 30, 2011. Revenue increased primarily as a result of acquisitions, which contributed an aggregate of $133.6 million of the non-currency adjusted increase. Net product sales from our North American flu-related sales decreased approximately $6.1 million, from $16.0 million during the three months ended September 30, 2011 to $9.9 million during the three months ended September 30, 2012. Net product sales and services revenue from our professional diagnostics business segment were negatively impacted by the FDA recall matters related to our Alere Triage® meter-based products. Net product sales of meter-based Triage products in the U.S. totaled $34.9 million during the three months ended September 30, 2012, as compared to $48.2 million during the three months ended September 30, 2011. Excluding the impact of acquisitions, the decrease in flu-related sales during the comparable periods and the impact of the reduction in net product sales from meter-based Triage products in the U.S., the currency-adjusted organic growth for our professional diagnostics net product sales and services revenue was approximately $3.0 million, or 1%, from the three months ended September 30, 2011 to the three months ended September 30, 2012.

Within our professional diagnostics business segment, net product sales and services revenue for our cardiology business decreased by approximately $5.6 million, or 4%, to $122.4 million for the three months ended September 30, 2012, from $127.9 million for the three months ended September 30, 2011, driven principally by the impact of the FDA recall of certain of our meter-based Triage products in the U.S. Net product sales and services revenue for our infectious disease business decreased by approximately $6.1 million, or 4%, to $136.6 million for the three months ended September 30, 2012, from $142.6 million for the three months ended September 30, 2011. The change was driven principally by a decrease in flu-related sales during the comparable periods as well as a decrease in both HIV and Malaria sales, both of which compare to particularly strong sales during the comparable periods, and suffered certain delays in shipments during the three months ended September 30, 2012, but should be reversed in the fourth quarter of 2012. Our toxicology business increased by approximately $62.6 million, or 67%, to $156.1 million for the three months ended September 30, 2012, from $93.5 million for the three months ended September 30, 2011, with our recent acquisitions of Avee Laboratories Inc., or Avee, eScreen, Inc., or eScreen, and Amedica Biotech, Inc., or Amedica, contributing a combined net $62.5 million of the non-currency adjusted increase.

 

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Net product sales and services revenue from our professional diagnostics business segment increased by $340.8 million, or 27%, to $1.6 billion for the nine months ended September 30, 2012, from $1.2 billion for the nine months ended September 30, 2011. Excluding the impact of currency translation, net product sales and services revenue from our professional diagnostics business segment increased by $372.4 million, or 30%, comparing the nine months ended September 30, 2012 to the nine months ended September 30, 2011. Revenue increased primarily as a result of acquisitions, which contributed an aggregate of $363.5 million of the non-currency adjusted increase. Partially offsetting the increase in net product sales and services revenue contributed by acquisitions was a decrease in our North American flu-related net product sales during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. Net product sales from our North American flu-related sales decreased approximately $17.1 million, from $37.8 million during the nine months ended September 30, 2011 to $20.6 million during the nine months ended September 30, 2012, as a result of lower than normal flu levels observed in 2012 versus the more typical flu levels observed in 2011. Net product sales and services revenue from our professional diagnostics business segment were negatively impacted by the FDA recall matters related to our Alere Triage® meter-based products. Net product sales of meter-based Triage products in the U.S. totaled $126.0 million during the nine months ended September 30, 2012, as compared to $151.8 million during the nine months ended September 30, 2011. Excluding the impact of acquisitions, the decrease in flu-related sales during the comparable periods and the impact of the reduction in net product sales from meter-based Triage products in the U.S., the currency-adjusted organic growth for our professional diagnostics net product sales and services revenue was approximately $53.5 million, or 5%, from the nine months ended September 30, 2011 to the nine months ended September 30, 2012.

Within our professional diagnostics business segment, net product sales and services revenue for our cardiology business decreased by approximately $3.9 million, or 1%, to $386.8 million for the nine months ended September 30, 2012, from $390.7 million for the nine months ended September 30, 2011, driven by a $19.3 million decrease in our meter-based Triage net product sales in the U.S. during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011, partially offset by $17.8 million contributed by the acquisition of Axis-Shield. Net product sales and services revenue for our infectious disease business increased by approximately $19.8 million, or 5%, to $425.4 million for the nine months ended September 30, 2012, from $405.6 million for the nine months ended September 30, 2011, with the acquisition of Axis-Shield contributing $23.8 million of such increase, and a $4.5 million increase in our CD4 net product sales during the comparable periods, partially offset by a $17.1 million decrease in our North American flu-related net product sales during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. Our toxicology business increased by approximately $169.9 million, or 63%, to $437.7 million for the nine months ended September 30, 2012, from $267.8 million for the nine months ended September 30, 2011, with our recent acquisitions of Avee, eScreen and Amedica contributing a combined net $154.4 million of the non-currency adjusted increase.

Health Management

The following table summarizes our net product sales and services revenue from our health management business segment by groups of similar products and services for the three and nine months ended September 30, 2012 and 2011 (in thousands):

 

     Three Months  Ended
September 30,
     %     Nine Months  Ended
September 30,
     %  
     2012      2011      Change     2012      2011      Change  

Disease and case management

   $ 57,383       $ 59,441         (3 )%    $ 165,277       $ 182,118         (9 )% 

Wellness

     24,290         24,427         (1 )%      80,881         80,369         1

Women’s & children’s health

     29,136         28,509         2     90,220         85,550         5

Patient self-testing services

     24,269         17,554         38     68,074         60,529         12
  

 

 

    

 

 

      

 

 

    

 

 

    

Health management net product sales and services revenue

   $ 135,078       $ 129,931         4   $ 404,452       $ 408,566         (1 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

Our health management net product sales and services revenue increased by $5.1 million, or 4%, to $135.1 million for the three months ended September 30, 2012, from $130.0 million for the three months ended September 30, 2011. The increase in net product sales and services revenue was principally driven by an increase in our home coagulation monitoring programs due to the recognition of incremental patients and simultaneous reduction in patient attrition rates.

Our health management net product sales and services revenue decreased by $4.1 million, or 1%, to $404.5 million for the nine months ended September 30, 2012, from $408.6 million for the nine months ended September 30, 2011. Net product sales and services revenue in our health management segment was adversely impacted by the increasingly competitive environment, including pricing pressures, the impact of health plans insourcing less differentiated services, such as disease and case management, and state budget pressures.

 

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Consumer Diagnostics

Net product sales and services revenue from our consumer diagnostics business segment decreased by $1.9 million, or 8%, to $22.4 million for the three months ended September 30, 2012, from $24.3 million for the three months ended September 30, 2011. Net product sales by our 50/50 joint venture with P&G, or SPD, were $47.6 million during the three months ended September 30, 2012, as compared to $54.8 million during the three months ended September 30, 2011.

Net product sales and services revenue from our consumer diagnostics business segment decreased by $2.7 million, or 4%, to $66.2 million for the nine months ended September 30, 2012, from $68.9 million for the nine months ended September 30, 2011. Net product sales by SPD, were $145.0 million during the nine months ended September 30, 2012, as compared to $160.0 million during the nine months ended September 30, 2011.

License and Royalty Revenue. License and royalty revenue represents license and royalty fees from intellectual property license agreements with third parties. License and royalty revenue was $5.2 million for both the three months ended September 30, 2012 and 2011. License and royalty revenue decreased by approximately $6.4 million, or 36%, to $11.3 million for the nine months ended September 30, 2012, from $17.7 million for the nine months ended September 30, 2011. The decrease in royalty revenue for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, was largely driven by an amendment to our license agreement with Quidel during 2011 whereby the license agreement was converted to a fully paid-up license. As a result of the amendment, we did not record royalty revenue from Quidel during the nine months ended September 30, 2012 and do not anticipate recording royalty revenue from Quidel in the future.

Gross Profit and Margin. Gross profit increased by $39.8 million, or 13%, to $345.8 million for the three months ended September 30, 2012, from $306.0 million for the three months ended September 30, 2011. Gross profit increased by $149.6 million, or 17%, to $1.1 billion for nine months ended September 30, 2012, from $904.9 million for the nine months ended September 30, 2011. The increase in gross profit during the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011 was attributed to the increase in net product sales and services revenue resulting from acquisitions.

Cost of net revenue included amortization expense of $18.4 million and $51.6 million for the three and nine months ended September 30, 2012, respectively, compared to $14.0 million and $48.2 million for the three and nine months ended September 30, 2011. Included in cost of net revenue for the nine months ended September 30, 2012 was a $4.7 million non-cash charge relating to the write-up of inventory to fair value in connection with the acquisition of Axis-Shield.

Overall gross margin for the three and nine months ended September 30, 2012 was 50% and 51%, respectively, compared to 52% for both the three and nine months ended September 30, 2011.

Gross Profit from Net Product Sales and Services Revenue, Total and by Business Segment. Gross profit from net product sales and services revenue increased by $40.0 million, or 13%, to $342.5 million for the three months ended September 30, 2012, from $302.4 million for the three months ended September 30, 2011. Gross profit from net product sales and services revenue increased by $156.1 million, or 17%, to $1.0 billion for the nine months ended September 30, 2012, from $892.4 million for the nine months ended September 30, 2011. Gross profit from net product sales and services revenue by business segment for the three and nine months ended September 30, 2012 and 2011 are as follows (in thousands):

 

     Three Months  Ended
September 30,
     %
Change
    Nine Months  Ended
September 30,
     %
Change
 
     2012      2011        2012      2011     

Professional diagnostics

   $ 276,906       $ 238,414         16   $ 853,676       $ 687,131         24

Health management

     60,358         58,609         3     180,460         189,867         (5 )% 

Consumer diagnostics

     5,221         5,421         (4 )%      14,379         15,390         (7 )% 
  

 

 

    

 

 

      

 

 

    

 

 

    

Gross profit from net product sales and services revenue

   $ 342,485       $ 302,444         13   $ 1,048,515       $ 892,388         17
  

 

 

    

 

 

      

 

 

    

 

 

    

Professional Diagnostics

Gross profit from our professional diagnostics net product sales and services revenue increased by $38.5 million, or 16%, to $276.9 million for the three months ended September 30, 2012, compared to $238.4 million for the three months ended September 30, 2011, principally as a result of gross profit earned on revenue from acquired businesses, as discussed above. Gross profit was negatively impacted comparing the three months ended September 30, 2012 to the three months ended September 30, 2011, as a result of a decrease in our meter-based Triage product sales and our North American flu-related sales, as discussed above. The FDA recall matter relating to our meter-based Triage products also resulted in incremental costs during the three months ended September 30, 2012 principally due to unfavorable manufacturing variances and the lost margin on the reduced volume of tests sold during the quarter.

 

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Gross profit from our professional diagnostics net product sales and services revenue increased by $166.5 million, or 24%, to $853.7 million for the nine months ended September 30, 2012, compared to $687.1 million for the nine months ended September 30, 2011, principally as a result of gross profit earned on revenue from acquired businesses and organic growth, as discussed above. Gross profit was negatively impacted comparing the nine months ended September 30, 2012 to the nine months ended September 30, 2011, as a result of a decrease in our North American flu-related sales and meter-based Triage product sales, as discussed above. The FDA recall matter relating to our meter-based Triage products also resulted in incremental costs during the nine months ended September 30, 2012 related to the cost of refunds made during the period, replacement products issued at no cost, unfavorable manufacturing variances and the lost margin on the reduced volume of tests sold during the period. Included in cost of net revenue for our professional diagnostics business segment for the nine months ended September 30, 2012 was a $4.7 million non-cash charge relating to the write-up of inventory to fair value in connection with the acquisition of Axis-Shield.

As a percentage of our professional diagnostics net product sales and services revenue, gross margin for the three and nine months ended September 30, 2012 was 52% and 54%, respectively, compared to 56% and 55% for the three and nine months ended September 30, 2011. Increased revenue from our recently acquired toxicology businesses, which contribute lower-than-segment-average gross margins, and a decrease in North American flu-related sales and meter-based Triage product sales, which contribute higher-than-segment-average gross margin, contributed to the decrease in gross margin for the respective periods.

Health Management

Gross profit from our health management net product sales and services revenue increased by $1.7 million, or 3%, to $60.4 million for the three months ended September 30, 2012, compared to $58.6 million for the three months ended September 30, 2011, principally as a result of the increase in our revenue associated with our home coagulation monitoring programs during the comparable periods, as discussed above. Gross profit from our health management net product sales and services revenue decreased by $9.4 million, or 5%, to $180.5 million for the nine months ended September 30, 2012, compared to $189.9 million for the nine months ended September 30, 2011, principally as a result of the decrease in revenue during the comparable periods and the increasingly competitive environment, including pricing pressures, and other adverse factors on our health management net product sales and services revenue.

As a percentage of our health management net product sales and services revenue, gross margin for both the three and nine months ended September 30, 2012 was 45%, compared to 45% and 46% for the three and nine months ended September 30, 2011, respectively. The lower margin percentage earned during the three and nine months ended September 30, 2012 is primarily a result of the increasingly competitive environment, including pricing pressures, and other adverse factors affecting our health management net product sales and services revenues, as discussed above.

Consumer Diagnostics

Gross profit from our consumer diagnostics net product sales and services revenue decreased by $0.2 million, or 4%, to $5.2 million for the three months ended September 30, 2012, compared to $5.4 million for the three months ended September 30, 2011.

Gross profit from our consumer diagnostics net product sales and services revenue decreased by $1.0 million, or 7%, to $14.4 million for the nine months ended September 30, 2012, compared to $15.4 million for the nine months ended September 30, 2011. The decrease in gross profit was primarily the result of a one-time cost of goods sold adjustment totaling approximately $0.7 million related to our manufacturing agreement with SPD recorded during the nine months ended September 30, 2012.

As a percentage of our consumer diagnostics net product sales and services revenue, gross margin for the three and nine months ended September 30, 2012 was 23% and 22%, respectively, compared to 22% for both the three and nine months ended September 30, 2011, respectively.

Research and Development Expense. Research and development expense increased by $5.8 million, or 17%, to $40.6 million for the three months ended September 30, 2012, from $34.8 million for the three months ended September 30, 2011. Amortization expense of $1.3 million and $1.4 million was included in research and development expense for the three months ended September 30, 2012 and 2011, respectively.

Research and development expense increased by $7.3 million, or 7%, to $120.0 million for the nine months ended September 30, 2012, from $112.7 million for the nine months ended September 30, 2011. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling approximately $0.6 million and $0.4 million were included in research and development expense for the nine months ended September 30, 2012 and 2011, respectively. Amortization expense of $5.2 million and $11.1 million was included in research and development expense for the nine months ended September 30, 2012 and 2011, respectively. Included in the $11.1 million of amortization expense for the nine months ended September 30, 2011 was $7.2 million related to the write off of certain in-process research and development projects recorded in connection with the Standard Diagnostics acquisition during the first quarter of 2010.

Research and development expense as a percentage of net revenue was 6% each of the three and nine months ended September 30, 2012 and 2011.

Sales and Marketing Expense. Sales and marketing expense increased by $26.3 million, or 20%, to $160.6 million for the three months ended September 30, 2012, from $134.4 million for the three months ended September 30, 2011. The increase in sales

 

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and marketing expense primarily relates to additional spending related to newly-acquired businesses. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling approximately $0.9 million were included in sales and marketing expense for both the three months ended September 30, 2012 and 2011, respectively. Amortization expense of $61.1 million and $53.0 million was included in sales and marketing expense for the three months ended September 30, 2012 and 2011, respectively.

Sales and marketing expense increased by $70.6 million, or 17%, to $478.5 million for the nine months ended September 30, 2012, from $408.0 million for the nine months ended September 30, 2011. The increase in sales and marketing expense primarily relates to additional spending related to newly-acquired businesses. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling approximately $1.9 million and $3.8 million were included in sales and marketing expense for the nine months ended September 30, 2012 and 2011, respectively. Amortization expense of $179.2 million and $158.6 million was included in sales and marketing expense for the nine months ended September 30, 2012 and 2011, respectively.

Sales and marketing expense as a percentage of net revenue was 23% for both the three and nine months ended September 30, 2012, compared to 23% and 24% for the three and nine months ended September 30, 2011, respectively.

General and Administrative Expense. General and administrative expense increased by approximately $13.9 million, or 15%, to $105.8 million for the three months ended September 30, 2012, from $91.9 million for the three months ended September 30, 2011. The increase in general and administrative expense relates primarily to additional spending related to newly-acquired businesses. During the three months ended September 30, 2012 and 2011, we recorded income of $15.1 million and $3.8 million, respectively, in connection with fair value adjustments to acquisition-related contingent consideration obligations. Acquisition-related costs of $0.8 million and $2.9 million were included in general and administrative expense for the three months ended September 30, 2012 and 2011, respectively. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling approximately $1.2 million and $2.1 million were included in general and administrative expense for the three months ended September 30, 2012 and 2011, respectively. Amortization expense of $2.0 million and $1.7 million was included in general and administrative expense for the three months ended September 30, 2012 and 2011, respectively.

General and administrative expense increased by approximately $55.5 million, or 19%, to $347.8 million for the nine months ended September 30, 2012, from $292.3 million for the nine months ended September 30, 2011. The increase in general and administrative expense relates primarily to additional spending related to newly-acquired businesses. During the nine months ended September 30, 2012 and 2011, we recorded income of $16.8 million and $9.7 million, respectively, in connection with fair value adjustments to acquisition-related contingent consideration obligations. Acquisition-related costs of $6.1 million and $6.2 million were included in general and administrative expense for the nine months ended September 30, 2012 and 2011, respectively. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling approximately $5.5 million and $13.1 million were included in general and administrative expense for the nine months ended September 30, 2012 and 2011, respectively. Amortization expense of $6.1 million and $9.2 million was included in general and administrative expense for the nine months ended September 30, 2012 and 2011, respectively.

General and administrative expense as a percentage of net revenue was 15% and 17% for the three and nine months ended September 30, 2012, respectively, compared to 16% and 17% for the three and nine months ended September 30, 2011.

Interest Expense. Interest expense includes interest charges and the amortization of deferred financing costs and original issue discounts associated with certain debt issuances. Interest expense increased by $7.5 million, or 16%, to $54.9 million for the three months ended September 30, 2012, from $47.3 million for the three months ended September 30, 2011. The increase is principally due to higher interest expense recorded in connection with higher outstanding debt balances and applicable interest rates during the third quarter of 2012 under our secured credit facility, compared to the outstanding debt balances and applicable interest rates during the third quarter of 2011.

Interest expense increased by $6.9 million, or 4%, to $161.1 million for the nine months ended September 30, 2012, from $154.2 million for the nine months ended September 30, 2011. The increase is principally due to higher interest expense recorded in connection with higher outstanding debt balances and applicable interest rates during the nine months ended September 30, 2012, compared to the outstanding debt balances and applicable interest rates during the nine months ended September 30, 2011. The increase in interest expense during the nine months ended September 30, 2012 was partially offset by interest expense and amortization of fees paid for certain debt modifications totaling $31.2 million during the nine months ended September 30, 2011 recorded in connection with the termination of our former secured credit facility and related interest rate swap agreement.

 

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Other Income (Expense), Net. Other income (expense), net includes interest income, realized and unrealized foreign exchange gains and losses, and other income and expense. The components and the respective amounts of other income (expense), net are summarized as follows (in thousands):

 

     Three Months  Ended
September 30,
    Change     Nine Months  Ended
September 30,
    Change  
     2012     2011       2012     2011    

Interest income

   $ 344      $ 927      $ (583   $ 1,409      $ 1,818      $ (409

Foreign exchange gains (losses), net

     671        (24,740     25,411        (5,526     (27,532     22,006   

Other

     (2,087     15,563        (17,650     18,687        20,237        (1,550
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

   $ (1,072   $ (8,250   $ 7,178      $ 14,570      $ (5,477   $ 20,047   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The primary reason for the increase in foreign exchange gains (losses), net for both the three and nine months ended September 30, 2012, as compared to the three and nine months ended September 30, 2011, was primarily a result of an $18.1 million unrealized foreign currency loss associated with a cash balance established in connection with the Axis-Shield tender offer recognized during the three and nine months ended September 30, 2011. Other income of $15.6 million for the three months ended September 30, 2011 includes a net $11.3 million of income associated with an amendment of our license agreement with Quidel, which also includes a settlement of prior period royalties, and $5.0 million of income associated with the settlement of a dispute over certain intellectual property rights. Other income of $18.7 million for the nine months ended September 30, 2012 includes a $13.5 million final royalty termination payment received from Quidel, a $7.2 million gain recorded on the sale of property and $1.4 million of income associated with legal settlements related to intellectual property litigation. Other income of $20.2 million for the nine months ended September 30, 2011 includes $13.8 million of income associated with an amendment of our license agreement with Quidel, which also includes a settlement of prior period royalties, $5.0 million of income associated with the settlement of a dispute over certain intellectual property rights, $0.5 million of estimated prior period royalty income and a $1.8 million reversal of a prior period legal settlement reserve no longer deemed necessary.

Gain on Sale of Joint Venture Interest. In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G had the right, for a period of 60 days commencing on May 17, 2011, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G had the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. No gain on the proceeds that we received from P&G through the formation of SPD was recognized in our financial statements until P&G’s option to require us to purchase its interest in SPD expired. On July 16, 2011, P&G’s option to require us to acquire its interest in SPD at fair market value expired. In connection with the expiration of the option, the gain totaling approximately $288.9 million was recognized during the third quarter of 2011.

Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes decreased by $53.3 million to a $10.7 million benefit for the three months ended September 30, 2012 from a $42.7 million provision for the three months ended September 30, 2011. The effective tax rate was 62% for the three months ended September 30, 2012 compared to 15% for the three months ended September 30, 2011. The income tax provision (benefit) for the three months ended September 30, 2012 and 2011 relates to federal, foreign and state income tax provisions (benefits). The increase in the effective income tax rate and benefit for income taxes during the three months ended September 30, 2012, compared to the three months ended September 30, 2011, is primarily due to the gain on the sale of our joint venture interest, as discussed above, recorded during the third quarter of 2011 that was subject to tax at lower foreign rates, the expiration of the federal research and development tax credit during 2012, an increase in certain foreign earnings subject to U.S. taxation, an increase to certain tax reserves under the principles of accounting for uncertain tax positions in accordance with ASC 740, Income Taxes, and increases in certain current year state tax losses not benefitted.

The benefit for income taxes increased by $8.2 million to a $12.6 million benefit for the nine months ended September 30, 2012 from a $4.4 million benefit for the nine months ended September 30, 2011. The effective tax rate was 33% for the nine months ended September 30, 2012 compared to 2% for the nine months ended September 30, 2011. The income tax benefit for the nine months ended September 30, 2012 and 2011 relates to federal, foreign and state income tax provisions (benefits). The increase in the effective income tax rate and benefit for income taxes during the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, is primarily due to the gain on the sale of our joint venture interest, as discussed above, recorded during the nine months ended September 30, 2011 that was subject to tax at lower foreign rates, the expiration of the federal research and development tax credit during 2012, an increase in certain foreign earnings subject to U.S. taxation, an increase to certain tax reserves under the principles of accounting for uncertain tax positions in accordance with ASC 740, Income Taxes, and increases in certain current year state tax losses not benefitted. In addition, during the nine months ended September 30, 2011, there was a discrete benefit recorded for the reversal of valuation allowances on certain capital assets.

Equity Earnings in Unconsolidated Entities, Net of Tax. Equity earnings in unconsolidated entities is reported net of tax and includes our share of earnings in entities that we account for under the equity method of accounting. Equity earnings in unconsolidated entities, net of tax for the three and nine months ended September 30, 2012 reflects the following: (i) our 50% interest in SPD in the amount of $2.1 million and $8.2 million, respectively, (ii) our 40% interest in Vedalab S.A., or Vedalab, in the amount of $0.3 million and $0.4 million, respectively, and (iii) our 49% interest in TechLab, Inc., or TechLab, in the amount of $0.6 million and $1.8 million, respectively. Equity earnings in unconsolidated entities, net of tax for the three and nine months ended September 30, 2011 reflects the following: (i) our 50% interest in SPD in the amount of $3.6 million and $3.0 million, respectively, (ii) our 40% interest in Vedalab in the amount of $0.2 million and $0.4 million, respectively, and (iii) our 49% interest in TechLab in the amount of $0.3 million and $1.5 million, respectively.

 

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Net Income (Loss) Available to Common Stockholders. For the three months ended September 30, 2012, we generated a net loss available to common stockholders of $9.2 million, or $0.11 per basic common share. For the three months ended September 30, 2011, we generated net income available to common stockholders of $234.2 million, or $2.48 per diluted common share. Net income (loss) available to common stockholders reflects $5.4 million of preferred stock dividends paid during both the three months ended September 30, 2012 and 2011, respectively.

For the nine months ended September 30, 2012, we generated a net loss available to common stockholders of $31.4 million, or $0.39 per basic common share. For the nine months ended September 30, 2011, we generated net income available to common stockholders of $237.6 million, or $2.56 per diluted common share. Net income (loss) available to common stockholders reflects $15.9 million and $16.7 million of preferred stock dividends paid during the nine months ended September 30, 2012 and 2011, respectively, and $23.9 million of income associated with the repurchase of preferred stock during the nine months ended September 30, 2011.

See Note 5 of the accompanying consolidated financial statements for the calculation of net income (loss) per common share.

Liquidity and Capital Resources

Based upon our current working capital position, current operating plans and expected business conditions, we currently expect to fund our short- and long-term working capital needs primarily using existing cash and our operating cash flow, and we expect our working capital position to improve as we improve our future operating margins and grow our business through new product and service offerings and by continuing to leverage our strong intellectual property position. As of September 30, 2012, we had $302.3 million of cash and cash equivalents, of which $77.0 million was held by domestic subsidiaries and $225.3 million was held by foreign entities. We do not plan to repatriate cash held by foreign entities due to adverse tax implications, including incremental U.S. tax liabilities and potential foreign withholding tax liabilities.

We may also utilize our secured credit facility (See Note 9) or other new sources of financing to fund a portion of our capital needs and other commitments, including our contractual contingent consideration obligations and future acquisitions. As of September 30, 2012, we had outstanding borrowings totaling $97.5 million under the $250.0 million revolving line of credit under our secured credit facility, leaving $152.5 million available to us for additional borrowings. Our ability to access the capital markets may be impacted by the amount of our outstanding debt and equity and the extent to which our assets are encumbered by our outstanding secured debt. The terms and conditions of our outstanding debt instruments also contain covenants which expressly restrict our ability to incur additional indebtedness and conduct other financings. As of September 30, 2012, we had $3.6 billion in outstanding indebtedness comprised of $2.4 billion under our secured credit facility, $400.0 million of 8.625% subordinated notes due 2018, $392.5 million of 9% senior subordinated notes due 2016, $246.3 million of 7.875% senior notes due 2016 and $150.0 million of 3% senior subordinated convertible notes due 2016. The applicable interest rate margins under our secured credit facility represent an increase of between approximately 0.75% and 2.25% (depending on the type of loan and the type of interest rate involved and on our applicable leverage ratios) over the applicable margins under our former secured credit facility. As a result of this increase in applicable interest rates, the 1.00% floor with respect to the base Eurodollar Rate (as defined in the senior credit facility) for “B” term loans, “Incremental B-1” term loans and “Incremental B-2” term loans under our secured credit facility that are based on the Eurodollar Rate, margins and the larger amount outstanding under our secured credit facility, we anticipate that our aggregate interest expense in 2012 and future periods will exceed our aggregate interest expense in 2011.

If the capital and credit markets experience volatility or the availability of funds is limited, we may incur increased costs associated with issuing debt instruments. In addition, it is possible that our ability to access the capital and credit markets could be limited by these or other factors at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions.

Our funding plans for our working capital needs and other commitments may be adversely impacted by unexpected costs associated with integrating the operations of newly-acquired companies, executing our cost-savings strategies and prosecuting and defending our existing lawsuits and/or unforeseen lawsuits against us. We also cannot be certain that our underlying assumed levels of revenues and expenses will be realized. In addition, we intend to continue to make significant investments in our research and development efforts related to the substantial intellectual property portfolio we own. We may also choose to further expand our research and development efforts and may pursue the acquisition of new products and technologies through licensing arrangements, business acquisitions, or otherwise. We may also choose to make significant investment to pursue legal remedies against potential infringers of our intellectual property rights. If we decide to engage in such activities, or if our operating results fail to meet our expectations, we could be required to seek additional funding through public or private financings or other arrangements. In such event, adequate funds may not be available when needed or may be available only on terms which could have a negative impact on our business and results of operations. In addition, if we raise additional funds by issuing equity or convertible securities, dilution to then existing stockholders may result.

 

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Cash Flow Summary

(in thousands)

 

     Nine Months  Ended
September 30,
 
     2012     2011  

Net cash provided by operating activities

   $ 253,763      $ 222,507   

Net cash used in investing activities

     (456,421     (648,004

Net cash provided by financing activities

     212,927        299,408   

Foreign exchange effect on cash and cash equivalents

     (7,188     1,537   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,081        (124,552

Cash and cash equivalents, beginning of period

     299,173        401,306   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 302,254      $ 276,754   
  

 

 

   

 

 

 

Summary of Changes in Cash Position

As of September 30, 2012, we had cash and cash equivalents of $302.3 million, a $3.1 million increase from December 31, 2011. Our primary sources of cash during the nine months ended September 30, 2012 included $253.8 million generated by our operating activities, approximately $198.3 million of proceeds received in connection with long-term debt issuances, $91.2 million of net proceeds under various revolving credit facilities, $22.4 million of proceeds received from the sale of property, plant and equipment, $14.3 million from common stock issuances under employee stock option and stock purchase plans and $6.6 million return of capital from equity method investments. Our primary uses of cash during the nine months ended September 30, 2012 included $384.8 million net cash paid for acquisitions, $97.3 million of capital expenditures, $42.6 million related to the repayment of long-term debt obligations, $16.2 million paid for contingent purchase price consideration, $16.0 million for cash dividends paid on our Series B Preferred stock, $9.3 million related to an increase in other assets and $6.2 million related to the repayment of short-term debt obligations. Fluctuations in foreign currencies negatively impacted our cash balance by $7.2 million during the nine months ended September 30, 2012.

Cash Flows from Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2012 was $253.8 million, which resulted from a net loss of $15.4 million, $303.1 million of non-cash items and $34.0 million of cash utilized by changes in net working capital requirements during the period. The $303.1 million of non-cash items included, among other items, $322.4 million related to depreciation and amortization, $16.1 million of interest expense related to the amortization of deferred financing costs and original issue discounts, $11.9 million related to stock-based compensation and a $4.7 million non-cash charge relating to the write-up of inventory to fair value in connection with the acquisition of Axis-Shield, partially offset by a $43.6 million decrease related to changes in our deferred tax assets and liabilities, which partially resulted from amortization of intangible assets, a $10.4 million decrease attributable to equity earnings in unconsolidated entities and a $4.2 million gain on the sale of property, plant and equipment.

Cash Flows from Investing Activities

Our investing activities during the nine months ended September 30, 2012 utilized $456.4 million of cash, including $384.8 million net cash paid for acquisitions, $97.3 million of capital expenditures and $9.3 million related to an increase in other assets, offset by $22.4 million of proceeds received from the sale of property, plant and equipment, $6.6 million return of capital from equity method investments, which included a $6.1 million return of capital from SPD, and a $5.8 million decrease in our restricted cash balance.

Cash Flows from Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2012 was $212.9 million. Financing activities during the nine months ended September 30, 2012 primarily included approximately $198.3 million of proceeds received in connection with long-term debt issuances, which included $198.0 million of net proceeds received in connection with the “Incremental B-2” term loans entered into as part of our secured credit facility, $91.2 million of net proceeds under various revolving credit facilities, which included $97.5 million borrowed against our secured credit facility revolving line-of-credit, and $14.3 million of cash received from common stock issuances under employee stock option and stock purchase plans. We utilized approximately $42.6

 

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million in connection with the repayment of long-term debt obligations, $16.2 million paid for contingent purchase price consideration, $16.0 million for cash dividends paid on our Series B Preferred stock, $6.2 million for the repayment of short-term debt obligations and $4.9 million for payment of capital lease obligations.

As of September 30, 2012, we had an aggregate of $20.1 million in outstanding capital lease obligations which are payable through 2019.

Income Taxes

As of December 31, 2011, we had approximately $216.4 million of domestic NOL and capital loss carryforwards and $209.5 million of foreign NOL and capital loss carryforwards, respectively, which either expire on various dates through 2031 or may be carried forward indefinitely. These losses are available to reduce federal, state and foreign taxable income, if any, in future years. These losses are also subject to review and possible adjustments by the applicable taxing authorities. In addition, the domestic NOL carryforward amount at December 31, 2011 included approximately $97.1 million of pre-acquisition losses at Matria, QAS, ParadigmHealth, Biosite, Cholestech, Redwood, HemoSense, Ischemia, Ostex International, Ionian and Twist. Effective January 1, 2009, we adopted a new accounting standard for business combinations. Prior to adoption of this standard, the pre-acquisition losses were applied first to reduce to zero any goodwill and other non-current intangible assets related to the acquisitions, prior to reducing our income tax expense. Upon adoption of the new accounting standard, the reduction of a valuation allowance is generally recorded to reduce our income tax expense.

Furthermore, all domestic losses are subject to the Internal Revenue Code Section 382 limitation and may be limited in the event of certain cumulative changes in ownership interests of significant shareholders over a three-year period in excess of 50%. Section 382 imposes an annual limitation on the use of these losses to an amount equal to the value of the company at the time of the ownership change multiplied by the long-term tax exempt rate. We have recorded a valuation allowance against a portion of the deferred tax assets related to our NOLs and certain of our other deferred tax assets to reflect uncertainties that might affect the realization of such deferred tax assets, as these assets can only be realized via profitable operations.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2012.

Contractual Obligations

On March 28, 2012, we entered into a third amendment to our secured credit facility, which provides for an additional term loan facility consisting of “Incremental B-2” term loans in the aggregate principal amount of $200.0 million. As of September 30, 2012, aggregate borrowings under the secured credit facility amounted to $2.4 billion. The table below summarizes our aggregate long-term debt obligations as of September 30, 2012 (in thousands).

 

     Payments Due by Period  
     Total      2012      2013-2014      2015-2016      Thereafter  

Long-term debt obligations

   $ 3,593,091       $ 16,845       $ 107,145       $ 1,760,373       $ 1,708,728   

The following summarizes our principal contractual obligations as of September 30, 2012 that have changed significantly since December 31, 2011, other than the changes described above with respect to our secured credit facility, and the effects such obligations are expected to have on our liquidity and cash flow in future periods. Other contractual obligations that were presented in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, but omitted below, represent those that have not changed significantly since that date.

(a) Acquisition-related Contingent Consideration Obligations

 

   

AmMed

With respect to AmMed Direct LLC, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational targets within six months of the acquisition date. The maximum amount of the earn-out payment was $2.0 million. The conditions of the earn-out were not achieved and as such no further contingent consideration obligations related to this acquisition exist as of September 30, 2012.

 

   

Amedica

With respect to Amedica Biotech, Inc., the terms of the acquisition agreement require us to make earn-out payments upon successfully meeting certain financial targets during each of calendar years 2012 and 2013. The maximum amount of the earn-out payments are $6.9 million and $8.1 million for calendar years 2012 and 2013, respectively.

 

   

Capital Toxicology

 

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The initial terms of the acquisition agreement for Capital Toxicology, LLC, provided for an earn-out calculated based on the amount, if any, by which EBITDA derived from the acquired business exceeded specified targets during each of the calendar years 2011 and 2012. A portion of the earn-out for the 2011 calendar year totaling approximately $2.1 million was earned and accrued as of December 31, 2011. During the first quarter of 2012, the acquisition agreement was modified to base the earn-out on the excess of actual cash collections from 2011 sales over 2011 expenses rather than EBITDA. This new criterion resulted in an incremental $2.9 million accrual related to the earn-out for the 2011 calendar year based on cash collections through March 31, 2012. $4.1 million was paid in respect of the earn-out for the 2011 calendar year during the second quarter of 2012. An additional payment of approximately $1.5 million will be made in the fourth quarter of 2012 for the incremental cash collections from 2011 sales received prior to August 31, 2012. The maximum potential remaining amount of the earn-out payments is approximately $8.0 million.

 

   

DiagnosisOne

With respect to DiagnosisOne, Inc., 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. The maximum amount of the earn-out payments is $33.0 million.

 

   

Diagnostik

With respect to Diagnostik Nord, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within two years of the acquisition date. The maximum amount of the earn-out payments is approximately €1.4 million (approximately $1.8 million at September 30, 2012).

 

   

eScreen

With respect to eScreen, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets during calendar years 2012 through 2014. The maximum amount of the earn-out payments is $70.0 million.

 

   

MedApps

With respect to MedApps Holding Company, Inc., the terms of the acquisition agreement require us to make earn-out payments upon achievement of certain technological and product development milestones through January 15, 2015. The maximum amount of the earn-out payments is $22.0 million.

 

   

Standing Stone

With respect to Standing Stone, Inc., or Standing Stone, the terms of the acquisition agreement require us to pay earn-outs and employee bonuses upon successfully meeting certain operational, product development and revenue targets during the period from the date of acquisition through calendar year 2013. A cash earn-out payment totaling approximately $5.5 million and employee bonus payments totaling approximately $0.3 million for the achievement of the first two milestones were made during the second quarter of 2012. The maximum remaining amount of the earn-out payments is approximately $5.5 million. The maximum remaining amount of the employee bonuses is $0.3 million.

(b) Contingent Obligations

 

   

Standing Stone

Under the terms of the acquisition agreement we acquired the remaining 19.08% of the issued and outstanding capital stock of Standing Stone, the holders of which were officers and employees of Standing Stone, in May 2012 for an aggregate purchase price of approximately $2.6 million.

 

   

Agreements with Epocal

In November 2009, we entered into a distribution agreement with Epocal, Inc., or Epocal, to distribute the epoc® Blood Analysis System for blood gas and electrolyte testing for $20.0 million, which is recorded on our accompanying consolidated balance sheet in other intangible assets, net. We also entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal for a total potential purchase price of up to $255.0 million, including a base purchase price of up to $172.5 million if Epocal achieves certain gross margin and other financial milestones on or prior to October 31, 2014, plus additional payments of up to $82.5 million if Epocal achieves certain other milestones relating to its gross margin and product development efforts on or prior to this date. The agreement contains a working capital adjustment whereby the purchase price is increased or decreased to the extent that Epocal’s working capital at closing is more or less than a specified amount. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones. The acquisition will also be subject to other closing conditions, including the receipt of any required antitrust or other approvals. In April 2011, we entered into a license agreement with Epocal and amended some of the terms of the definitive agreement to acquire Epocal. The license agreement provides us with royalty-free access to certain Epocal intellectual property for use in our home-use products and provided for an upfront license payment of $18.0 million, which we paid in 2011. The amendment of the definitive agreement increased the working capital target by $18.0 million, which may have the effect of reducing the purchase price of the acquisition. The amendment of the agreement also added an additional potential milestone payment of $8.0 million. As a result, the maximum purchase price under the acquisition agreement increased to $263.0 million.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements in accordance with generally accepted accounting principles requires us to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a quarterly basis, we evaluate our estimates, including those related to revenue recognition and related allowances, bad debt, inventory, valuation of long-lived assets, including intangible assets and goodwill, income taxes, including any valuation allowance for our net deferred tax assets, contingencies and litigation, and stock-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes in our critical accounting policies or management estimates since December 31, 2011. A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011.

 

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Recent Accounting Pronouncements

See Note 16 in the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011. Market risks that were presented in our annual report but are omitted below represent those that have not changed significantly since that date. The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those discussed in the forward-looking statements.

Interest Rate Risk

We are exposed to market risk from changes in interest rates primarily through our investing and financing activities. In addition, our ability to finance future acquisition transactions or fund working capital requirements may be impacted if we are not able to obtain appropriate financing at acceptable rates.

Our investing strategy to manage interest rate exposure is to invest in short-term, highly-liquid investments. Our investment policy also requires investment in approved instruments with an initial maximum allowable maturity of eighteen months and an average maturity of our portfolio that should not exceed six months, with at least $500,000 cash available at all times. Currently, our short-term investments are in money market funds with original maturities of 90 days or less. At September 30, 2012, our short-term investments approximated their market value. At September 30, 2012, under the credit agreement for our secured credit facility we had (i) term loans in an aggregate outstanding principal amount of $2.3 billion (consisting of “A” term loans (including the “Delayed-Draw” term loans) in the aggregate principal amount of $893.8 million, “B” term loans in the aggregate principal amount of $915.8 million, “Incremental B-1” term loans in the aggregate principal amount of $248.1 million and “Incremental B-2” term loans in the aggregate principal amount of $197.2 million), (ii) $97.5 million of outstanding borrowings under the revolving line of credit and (iii) subject to our continued compliance with the credit agreement, the ability to borrow a maximum of up to an additional $152.5 million under a revolving line of credit, which includes a $50.0 million sublimit for the issuance of letters of credit. Loans can be either Base Rate Loans or Eurodollar Rate Loans at our election, and interest accrues on loans and our other Obligations under the terms of the credit agreement as follows (with the terms referenced above and below in this paragraph having the meanings given to them in the credit agreement): (i) in the case of loans that are Base Rate Loans, at a rate per annum equal to the sum of the Base Rate and the Applicable Margin, each as in effect from time to time, (ii) in the case of loans that are Eurodollar Rate Loans, at a rate per annum equal to the sum of the Eurodollar Rate and the Applicable Margin, each as in effect for the applicable Interest Period, and (iii) in the case of other Obligations, at a rate per annum equal to the sum of the Base Rate and the Applicable Margin for Revolving Loans that are Base Rate Loans, each as in effect from time to time. The Base Rate is a floating rate which approximates the U.S. prime rate as in effect from time to time. The Eurodollar Rate is equal to the LIBOR rate and is set for a period of one, two, three or six months at our election. Applicable Margins for our “A” term loans (including the “Delayed-Draw” term loans) and revolving line of credit loans range from (i) with respect to such loans that are Base Rate Loans, 1.75% to 2.50% and (ii) with respect to such loans that are Eurodollar Rate Loans, 2.75% to 3.50%, in each case, depending upon our consolidated secured leverage ratio (as determined under the credit agreement). Applicable Margins for our “B” term loans, “Incremental B-1” term loans and “Incremental B-2” term loans range from (i) with respect to such loans that are Base Rate Loans, 2.50% to 3.25% and (ii) with respect to such loans that are Eurodollar Rate Loans, 3.50% to 4.25%, in each case, depending upon our consolidated secured leverage ratio. Interest on “B” term loans, “Incremental B-1” term loans and “Incremental B-2” term loans based on the Eurodollar Rate is subject to a 1.00% floor with respect to the base Eurodollar Rate. As of September 30, 2012, the “A” term loans (including the “Delayed-Draw” term loans), the “B” term loans, the “Incremental B-1” term loans, the “Incremental B-2” term loans and the revolving line of credit loans bore interest (including applicable margins) at 3.22%, 4.75%, 4.75%, 4.75% and 3.23% per annum, respectively.

 

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Assuming no changes in our consolidated secured leverage ratio, the effect of interest rate fluctuations on outstanding borrowings as of September 30, 2012 over the next twelve months is quantified and summarized as follows (in thousands):

 

     Interest  Expense
Increase
 

Interest rates payable by us increase by 100 basis points

   $ 23,523   

Interest rates payable by us increase by 200 basis points

   $ 47,046   

 

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a -15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective at that time. We and our management understand nonetheless that controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. In reaching their conclusions stated above regarding the effectiveness of our disclosure controls and procedures, our CEO and CFO concluded that such disclosure controls and procedures were effective as of such date at the “reasonable assurance” level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the most recent fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please see Part I, Item 2, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—FDA and OIG Matters Relating to Alere Triage Products” for a description of certain legal matters.

ITEM 1A. RISK FACTORS

This section updates and supplements 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, 2011, and should be read in conjunction with such disclosure. The risks described below may materially impact your investment in our company or may in the future, and, in some cases, already do materially affect us and our business, financial condition and results of operations. You should carefully consider these factors with respect to your investment in our securities.

We face risks and uncertainties relating to the FDA inspection and subpoena with respect to our Alere Triage products.

In March 2012, the FDA began an inspection of our San Diego facility relating to our Alere Triage products, and we have received a subpoena from the Office of Inspector General of the Department of Health and Human Services, or the OIG, seeking documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. As a result of the FDA inspection, and as previously disclosed, we implemented two recalls of Alere Triage products during the second quarter of 2012, as well as interim quality control release specifications. In June 2012, the FDA closed the inspection, and we received inspectional observations on FDA Form 483. In July 2012, we provided the FDA with a detailed response to its inspectional observations, which included a plan for how we proposed to address each observation as well as a timeline for doing so. Since submitting this response, we have been working diligently to address each of these observations. Also, on or about September 28, 2012, we agreed with the FDA on a set of final release specifications for our Alere Triage meter-based products that further align the product release specifications to the package insert. On October 9, 2012, we received a warning letter from the FDA citing the same inspectional observations set forth in the FDA Form 483 received in June. The warning letter, which was subsequently reissued as of October 22, 2012, acknowledged our July response but did not take into account the timeline that we had proposed or any of our efforts taken after our July response. On October 30, 2012, we responded to the warning letter and submitted evidence of our completion of most of the actions detailed in our July response, including all of the actions then due under our timeline. We will continue to provide the FDA with further periodic updates on the status of the actions that remain to be completed over the next several months to fully address the issues that the FDA has identified. We intend to continue to work cooperatively with both the FDA and OIG with respect to these matters, but we cannot assure you that the FDA and OIG will find our efforts satisfactory. It is possible that the issues arising out of the inspection and subpoena may be expanded to cover other matters. We may be unable to implement corrective actions within a timeframe and in a manner satisfactory to the FDA. We are unable to predict when these matters will be resolved or what action, if any, the government will take in connection with these matters. Also, except for increases in manufacturing costs and decreased profitability for our Alere Triage products, we are unable to predict what impact these matters or ensuing proceedings, if any, will have on our financial condition, results of operations or cash flows. Our related efforts to improve our production and quality control processes and increase production have increased our manufacturing costs, and we expect that our costs will continue to increase as we continue to meet the final release specifications. Because our efforts to improve our manufacturing processes are ongoing and because we are continuing to seek to implement the remaining changes in accordance with the timelines set forth in our response to the FDA, we cannot predict the continuing impact of the final quality control release specifications on our manufacturing yields. We cannot guarantee that we will be able to manufacture all of the impacted products at cost-effective yield rates under the final

 

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release specifications, in which case we may be required to, or we may opt to, cease production and sale of the impacted products. In any case, we expect that our ability to supply certain Alere Triage products will continue to be limited, which is expected to adversely affect revenues from sales of these products. We are unable to predict the scope or the duration of any product shortage. We have received inquiries from regulatory authorities outside the United States regarding the Alere Triage recalls in the United States and in at least one case, remedial or corrective action was required. It is possible that foreign regulatory authorities might require us to take additional actions with respect to Alere Triage products sold outside the United States. Our revenues and market share could continue to be adversely affected by customer decisions to switch to competing products due to product shortages or damage to our reputation resulting from these matters. In connection with these matters, we may face potential enforcement proceedings by the government, potential civil or criminal fines and penalties, including disgorgement of amounts received for any adulterated products, potential withdrawals of regulatory approvals, the possibility of injunctive relief, which could limit, modify or constrain our ability to manufacture, market and sell our products, possible exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and potential product liability litigation. We are unable to predict the costs we may incur in responding to the subpoena or other potential investigations of these matters. Any of these risks and uncertainties could adversely affect our revenues, results of operations, cash flows and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this report, we issued 74,633 shares of our common stock upon the exercise of warrants for cash, resulting in aggregate proceeds to us of $1,010,531. During the period covered by this report, we issued 9,157 shares of our common stock upon the net exercise of warrants to purchase 31,100 shares of our common stock, resulting in aggregate non-cash consideration to us of $421,094. The warrants were issued in 2002 in a private placement relating to an acquisition. The shares issued upon exercise of the warrants were offered and sold, in 91 separate transactions, pursuant to the exemptions from registration afforded by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act.

On August 14, 2012, we issued 66,666 shares of common stock as contingent consideration payable under the share purchase agreement, as amended, governing our acquisition of Mologic Limited in October 2009 as a result of Mologic achieving certain development milestones. The shares were issued in reliance upon on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation S thereunder.

ITEM 6. EXHIBITS

Exhibits:

 

Exhibit

No.

  Description
  *31.1   Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  *31.2   Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  *32.1   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*101   Interactive Data Files regarding (a) our Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011, (b) our Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011, (c) our Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (d) our Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 and (e) the Notes to such Consolidated Financial Statements.

 

* Filed herewith

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      ALERE INC.
Date: November 8, 2012      

/s/ David Teitel

      David Teitel
      Chief Financial Officer and an authorized officer

 

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