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 June 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
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
(Registrants 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 registrants common stock, par value of $0.001 per share, as of August 6, 2012 was 80,721,665.
ALERE INC.
REPORT ON FORM 10-Q
For the Quarterly Period Ended June 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.
2
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net product sales |
$ | 463,425 | $ | 398,805 | $ | 939,212 | $ | 806,048 | ||||||||
Services revenue |
233,855 | 163,575 | 426,289 | 331,127 | ||||||||||||
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Net product sales and services revenue |
697,280 | 562,380 | 1,365,501 | 1,137,175 | ||||||||||||
License and royalty revenue |
3,237 | 4,805 | 6,145 | 12,474 | ||||||||||||
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Net revenue |
700,517 | 567,185 | 1,371,646 | 1,149,649 | ||||||||||||
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Cost of net product sales |
222,498 | 190,333 | 448,052 | 380,020 | ||||||||||||
Cost of services revenue |
120,559 | 82,495 | 211,419 | 167,211 | ||||||||||||
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Cost of net product sales and services revenue |
343,057 | 272,828 | 659,471 | 547,231 | ||||||||||||
Cost of license and royalty revenue |
1,852 | 1,629 | 3,496 | 3,483 | ||||||||||||
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Cost of net revenue |
344,909 | 274,457 | 662,967 | 550,714 | ||||||||||||
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Gross profit |
355,608 | 292,728 | 708,679 | 598,935 | ||||||||||||
Operating expenses: |
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Research and development |
40,447 | 41,348 | 79,447 | 77,890 | ||||||||||||
Sales and marketing |
159,322 | 140,388 | 317,900 | 273,597 | ||||||||||||
General and administrative |
121,485 | 94,838 | 241,920 | 200,389 | ||||||||||||
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Total operating expenses |
321,254 | 276,574 | 639,267 | 551,876 | ||||||||||||
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Operating income |
34,354 | 16,154 | 69,412 | 47,059 | ||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs |
(55,531 | ) | (68,562 | ) | (106,258 | ) | (106,867 | ) | ||||||||
Other income (expense), net |
3,811 | 437 | 15,642 | 2,773 | ||||||||||||
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Loss before benefit for income taxes |
(17,366 | ) | (51,971 | ) | (21,204 | ) | (57,035 | ) | ||||||||
Benefit for income taxes |
(489 | ) | (42,736 | ) | (1,944 | ) | (47,066 | ) | ||||||||
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Loss before equity earnings (losses) of unconsolidated entities, net of tax |
(16,877 | ) | (9,235 | ) | (19,260 | ) | (9,969 | ) | ||||||||
Equity earnings (losses) of unconsolidated entities, net of tax |
3,998 | (207 | ) | 7,410 | 804 | |||||||||||
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Net loss |
(12,879 | ) | (9,442 | ) | (11,850 | ) | (9,165 | ) | ||||||||
Less: Net income (loss) attributable to non-controlling interests |
36 | (40 | ) | (149 | ) | 22 | ||||||||||
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Net loss attributable to Alere Inc. and Subsidiaries |
(12,915 | ) | (9,402 | ) | (11,701 | ) | (9,187 | ) | ||||||||
Preferred stock dividends |
(5,279 | ) | (5,515 | ) | (10,588 | ) | (11,324 | ) | ||||||||
Preferred stock repurchase |
| 10,248 | | 23,936 | ||||||||||||
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Net income (loss) available to common stockholders |
$ | (18,194 | ) | $ | (4,669 | ) | $ | (22,289 | ) | $ | 3,425 | |||||
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Basic net income (loss) per common share |
$ | (0.23 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | 0.04 | |||||
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Diluted net income (loss) per common share |
$ | (0.23 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | 0.04 | |||||
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Weighted average shares-basic |
80,375 | 85,703 | 80,307 | 85,536 | ||||||||||||
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Weighted average shares-diluted |
80,375 | 85,703 | 80,307 | 87,032 | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net loss |
$ | (12,879 | ) | $ | (9,442 | ) | $ | (11,850 | ) | $ | (9,165 | ) | ||||
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Other comprehensive income (loss), before tax: |
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Changes in cumulative translation adjustment |
(36,777 | ) | 17,106 | (838 | ) | 38,621 | ||||||||||
Unrealized gains (losses) on available for sale securities |
359 | (104 | ) | 790 | (319 | ) | ||||||||||
Unrealized gains (losses) on hedging instruments |
(652 | ) | 10,371 | 455 | 11,988 | |||||||||||
Minimum pension liability adjustment |
4 | 118 | (120 | ) | 80 | |||||||||||
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Other comprehensive income (loss), before tax |
(37,066 | ) | 27,491 | 287 | 50,370 | |||||||||||
Income tax provision related to items of other comprehensive income (loss) |
| 3,993 | | 4,612 | ||||||||||||
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Other comprehensive income (loss), net of tax |
(37,066 | ) | 23,498 | 287 | 45,758 | |||||||||||
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Comprehensive income (loss) |
(49,945 | ) | 14,056 | (11,563 | ) | 36,593 | ||||||||||
Less: Comprehensive income (loss) attributable to non-controlling interests |
36 | (40 | ) | (149 | ) | 22 | ||||||||||
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Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries |
$ | (49,981 | ) | $ | 14,096 | $ | (11,414 | ) | $ | 36,571 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except par value)
June 30, 2012 | December 31, 2011 | |||||||
ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 303,739 | $ | 299,173 | ||||
Restricted cash |
3,099 | 8,987 | ||||||
Marketable securities |
863 | 1,086 | ||||||
Accounts receivable, net of allowances of $31,625 and $24,577 at June 30, 2012 and December 31, 2011, respectively |
501,076 | 475,824 | ||||||
Inventories, net |
316,897 | 320,269 | ||||||
Deferred tax assets |
37,858 | 42,975 | ||||||
Receivable from joint venture, net |
3,735 | 2,503 | ||||||
Prepaid expenses and other current assets |
127,490 | 142,910 | ||||||
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Total current assets |
1,294,757 | 1,293,727 | ||||||
Property, plant and equipment, net |
500,798 | 491,205 | ||||||
Goodwill |
2,953,551 | 2,821,271 | ||||||
Other intangible assets with indefinite lives |
53,169 | 69,546 | ||||||
Finite-lived intangible assets, net |
1,904,722 | 1,785,925 | ||||||
Deferred financing costs, net, and other non-current assets |
102,026 | 97,786 | ||||||
Receivable from joint venture, net of current portion |
14,115 | 15,455 | ||||||
Investments in unconsolidated entities |
90,071 | 85,138 | ||||||
Marketable securities |
3,040 | 2,254 | ||||||
Deferred tax assets |
11,206 | 10,394 | ||||||
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Total assets |
$ | 6,927,455 | $ | 6,672,701 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current liabilities: |
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Current portion of long-term debt |
$ | 54,822 | $ | 61,092 | ||||
Current portion of capital lease obligations |
5,350 | 6,083 | ||||||
Short-term debt |
| 6,240 | ||||||
Accounts payable |
162,850 | 155,464 | ||||||
Accrued expenses and other current liabilities |
396,470 | 395,573 | ||||||
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Total current liabilities |
619,492 | 624,452 | ||||||
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Long-term liabilities: |
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Long-term debt, net of current portion |
3,489,050 | 3,267,451 | ||||||
Capital lease obligations, net of current portion |
10,229 | 12,629 | ||||||
Deferred tax liabilities |
436,247 | 380,700 | ||||||
Other long-term liabilities |
181,409 | 153,398 | ||||||
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Total long-term liabilities |
4,116,935 | 3,814,178 | ||||||
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Commitments and contingencies (Note 15) |
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Redeemable non-controlling interest |
| 2,497 | ||||||
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Stockholders equity: |
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Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at June 30, 2012 and December 31, 2011); Authorized: 2,300 shares; Issued: 2,065 shares at June 30, 2012 and December 31, 2011; Outstanding: 1,774 shares at June 30, 2012 and December 31, 2011 |
606,468 | 606,468 | ||||||
Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 88,099 shares at June 30, 2012 and 87,647 shares at December 31, 2011; Outstanding: 80,420 shares at June 30, 2012 and 79,968 shares at December 31, 2011 |
88 | 88 | ||||||
Additional paid-in capital |
3,295,662 | 3,324,710 | ||||||
Accumulated deficit |
(1,498,492 | ) | (1,486,791 | ) | ||||
Treasury stock, at cost, 7,679 shares at June 30, 2012 and December 31, 2011 |
(184,971 | ) | (184,971 | ) | ||||
Accumulated other comprehensive loss |
(29,982 | ) | (30,270 | ) | ||||
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Total stockholders equity |
2,188,773 | 2,229,234 | ||||||
Non-controlling interests |
2,255 | 2,340 | ||||||
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Total equity |
2,191,028 | 2,231,574 | ||||||
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Total liabilities and equity |
$ | 6,927,455 | $ | 6,672,701 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended June 30, |
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2012 | 2011 | |||||||
Cash Flows from Operating Activities: |
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Net loss |
$ | (11,850 | ) | $ | (9,165 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Non-cash interest expense, including amortization of original issue discounts and deferred financing costs |
10,731 | 27,590 | ||||||
Depreciation and amortization |
211,622 | 196,116 | ||||||
Non-cash charges for sale of inventories revalued at the date of acquisition |
4,681 | | ||||||
Non-cash stock-based compensation expense |
8,242 | 11,989 | ||||||
Impairment of inventory |
5 | 466 | ||||||
Impairment of long-lived assets |
219 | 957 | ||||||
Impairment of intangible assets |
| 2,935 | ||||||
(Gain) loss on sale of property, plant and equipment |
(5,872 | ) | 1,270 | |||||
Gain on sales of marketable securities |
| (331 | ) | |||||
Equity earnings of unconsolidated entities, net of tax |
(7,410 | ) | (804 | ) | ||||
Deferred income taxes |
(27,400 | ) | (63,343 | ) | ||||
Other non-cash items |
(883 | ) | (4,503 | ) | ||||
Changes in assets and liabilities, net of acquisitions: |
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Accounts receivable, net |
(5,431 | ) | (3,641 | ) | ||||
Inventories, net |
(4,412 | ) | (7,299 | ) | ||||
Prepaid expenses and other current assets |
16,866 | (36,052 | ) | |||||
Accounts payable |
(14,247 | ) | 13,524 | |||||
Accrued expenses and other current liabilities |
(366 | ) | 17,721 | |||||
Other non-current liabilities |
(8,265 | ) | 11,071 | |||||
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Net cash provided by operating activities |
166,230 | 158,501 | ||||||
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Cash Flows from Investing Activities: |
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Decrease in restricted cash |
5,888 | 34 | ||||||
Purchases of property, plant and equipment |
(69,461 | ) | (67,630 | ) | ||||
Proceeds from sale of property, plant and equipment |
21,677 | 835 | ||||||
Proceeds from disposition of business |
| 11,490 | ||||||
Cash paid for acquisitions, net of cash acquired |
(310,240 | ) | (107,360 | ) | ||||
Cash received from sales of marketable securities |
226 | 7,919 | ||||||
Cash received from equity method investments |
6,556 | 490 | ||||||
Increase in other assets |
(7,714 | ) | (32,101 | ) | ||||
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Net cash used in investing activities |
(353,068 | ) | (186,323 | ) | ||||
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Cash Flows from Financing Activities: |
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Cash paid for financing costs |
(2,013 | ) | (64,699 | ) | ||||
Cash paid for contingent purchase price consideration |
(6,500 | ) | (24,707 | ) | ||||
Proceeds from issuance of common stock, net of issuance costs |
8,697 | 17,829 | ||||||
Repurchase of preferred stock |
| (99,068 | ) | |||||
Proceeds from issuance of long-term debt |
199,234 | 1,552,124 | ||||||
Payments on long-term debt |
(29,884 | ) | (1,193,315 | ) | ||||
Net proceeds under revolving credit facilities |
42,487 | 3,335 | ||||||
Payments on short-term debt |
(6,240 | ) | | |||||
Repurchase of common stock |
| (926 | ) | |||||
Cash paid for dividends |
(10,646 | ) | (68 | ) | ||||
Excess tax benefits on exercised stock options |
210 | 1,704 | ||||||
Principal payments on capital lease obligations |
(3,319 | ) | (1,294 | ) | ||||
Other |
(2,577 | ) | (10,349 | ) | ||||
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Net cash provided by financing activities |
189,449 | 180,566 | ||||||
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Foreign exchange effect on cash and cash equivalents |
1,955 | 2,612 | ||||||
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Net increase in cash and cash equivalents |
4,566 | 155,356 | ||||||
Cash and cash equivalents, beginning of period |
299,173 | 401,306 | ||||||
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Cash and cash equivalents, end of period |
$ | 303,739 | $ | 556,662 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
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, or SEC, on February 29, 2012. 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 June 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):
June 30, 2012 | December 31, 2011 | |||||||
Raw materials |
$ | 99,034 | $ | 92,844 | ||||
Work-in-process |
77,945 | 72,939 | ||||||
Finished goods |
139,918 | 154,486 | ||||||
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$ | 316,897 | $ | 320,269 | |||||
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(4) Stock-based Compensation
We recorded stock-based compensation expense in our consolidated statements of operations for the three and six months ended June 30, 2012 and 2011, respectively, as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of sales |
$ | 263 | $ | 366 | $ | 532 | $ | 716 | ||||||||
Research and development |
856 | 1,191 | 1,627 | 2,136 | ||||||||||||
Sales and marketing |
913 | 1,209 | 1,830 | 2,168 | ||||||||||||
General and administrative |
2,336 | 3,415 | 4,253 | 6,969 | ||||||||||||
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4,368 | 6,181 | 8,242 | 11,989 | |||||||||||||
Benefit for income taxes |
(874 | ) | (1,304 | ) | (1,415 | ) | (2,590 | ) | ||||||||
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$ | 3,494 | $ | 4,877 | $ | 6,827 | $ | 9,399 | |||||||||
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7
(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 June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Numerator: |
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Net loss |
$ | (12,879 | ) | $ | (9,442 | ) | $ | (11,850 | ) | $ | (9,165 | ) | ||||
Preferred stock dividends |
(5,279 | ) | (5,515 | ) | (10,588 | ) | (11,324 | ) | ||||||||
Preferred stock repurchase |
| 10,248 | | 23,936 | ||||||||||||
Less: Net income (loss) attributable to non-controlling interest |
36 | (40 | ) | (149 | ) | 22 | ||||||||||
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Net income (loss) available to common stockholders |
$ | (18,194 | ) | $ | (4,669 | ) | $ | (22,289 | ) | $ | 3,425 | |||||
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Denominator: |
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Weighted-average common shares outstanding basic |
80,375 | 85,703 | 80,307 | 85,536 | ||||||||||||
Effect of dilutive securities: |
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Stock options |
| | | 1,253 | ||||||||||||
Warrants |
| | | 131 | ||||||||||||
Potentially issuable shares of common stock associated with contingent consideration arrangements |
| | | 112 | ||||||||||||
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Weighted-average common shares outstanding diluted |
80,375 | 85,703 | 80,307 | 87,032 | ||||||||||||
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Basic net income (loss) per common share attributable to Alere Inc. and Subsidiaries |
$ | (0.23 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | 0.04 | |||||
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|||||||||
Diluted net income (loss) per common share attributable to Alere Inc. and Subsidiaries |
$ | (0.23 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | 0.04 | |||||
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2012, anti-dilutive shares of 13.8 million and 13.9 million, respectively, were excluded from the computations of diluted net income (loss) per common share. For the three and six months ended June 30, 2011, anti-dilutive shares of 15.7 million and 14.5 million, respectively, were excluded from the computations of diluted net income (loss) per common share.
(6) Stockholders Equity and Non-controlling Interests
(a) Preferred Stock
For the three and six months ended June 30, 2012, Series B preferred stock dividends amounted to $5.3 million and $10.6 million, respectively, and for the three and six months ended June 30, 2011, Series B preferred stock dividends amounted to $5.5 million and $11.3 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 June 30, 2012, $5.3 million Series B preferred stock dividends were accrued. As of July 16, 2012, payments have been made covering all dividend periods through June 30, 2012.
The Series B preferred stock dividends for the three and six months ended June 30, 2012 were paid in cash. The Series B preferred stock dividends for the three and six months ended June 30, 2011 were paid in additional shares of Series B preferred stock.
(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, under this same authorization, we completed this repurchase program by repurchasing 16,700 shares of our common stock at a cost of approximately $0.6 million, which we paid in cash.
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.
8
(c) Changes in Stockholders Non-Controlling Interests
A summary of the changes in stockholders equity and non-controlling interests comprising total equity for the six months ended June 30, 2012 and 2011 is provided below (in thousands):
Six Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Total Stockholders Equity |
Non- controlling Interest |
Total Equity | Total Stockholders Equity |
Non- controlling Interest |
Total Equity | |||||||||||||||||||
Equity, 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 |
8,697 | | 8,697 | 17,829 | | 17,829 | ||||||||||||||||||
Repurchase of common stock |
| | | (926 | ) | | (926 | ) | ||||||||||||||||
Repurchase of preferred stock |
| | | (99,068 | ) | | (99,068 | ) | ||||||||||||||||
Preferred stock dividends |
(10,646 | ) | | (10,646 | ) | (68 | ) | | (68 | ) | ||||||||||||||
Stock-based compensation related to grants of common stock options |
8,242 | | 8,242 | 11,989 | | 11,989 | ||||||||||||||||||
Excess tax benefits on exercised stock options |
(261 | ) | | (261 | ) | 1,704 | | 1,704 | ||||||||||||||||
Purchase of subsidiary shares from non-controlling interests |
(35,079 | ) | | (35,079 | ) | | | | ||||||||||||||||
Non-controlling interest from acquisitions |
| | | | 2,500 | 2,500 | ||||||||||||||||||
Dividend relating to non-controlling interest |
| | | | (270 | ) | (270 | ) | ||||||||||||||||
Net income (loss) |
(11,701 | ) | (85 | ) | (11,786 | ) | (9,187 | ) | 22 | (9,165 | ) | |||||||||||||
Total other comprehensive income |
287 | | 287 | 45,758 | | 45,758 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Equity, end of period |
$ | 2,188,773 | $ | 2,255 | $ | 2,191,028 | $ | 2,544,069 | $ | 4,940 | $ | 2,549,009 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 six months ended June 30, 2012. There was no redeemable non-controlling interest during the six months ended June 30, 2011 (in thousands):
Six Months Ended June 30, 2012 |
||||
Redeemable non-controlling interest, beginning of period |
$ | 2,497 | ||
Purchase of subsidiary shares from non-controlling interest |
(2,433 | ) | ||
Net loss |
(64 | ) | ||
|
|
|||
Redeemable non-controlling interest, end of period |
$ | | ||
|
|
(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 date of acquisition. During the three and six months ended June 30, 2012, we expensed acquisition-related costs of $3.8 million and $5.3 million, respectively, in general and administrative expense. During the three and six months ended June 30, 2011, we expensed acquisition-related costs of $1.4 million and $3.3 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.
9
Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. 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 $316.6 million, which consisted of $272.1 million in cash and a contingent consideration obligation with an aggregate acquisition date fair value of $44.5 million. Included in our consolidated statements of operations for the three and six months ended June 30, 2012 is revenue totaling approximately $40.7 million 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 six months ended June 30, 2012, we acquired the following businesses for a preliminary aggregate purchase price of $32.8 million, which included cash payments totaling $31.8 million and a contingent consideration obligation with an aggregate acquisition date fair value of $1.0 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) |
The operating results of Alere Lda and AmMed are included in our professional diagnostics reporting unit and business segment. The operating results of Wellogic UAE 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 six months ended June 30, 2012 included revenue totaling approximately $10.6 million and $11.9 million, respectively, related to these businesses. Goodwill has been recognized in all of the acquisitions and amounted to approximately $10.2 million. Goodwill related to the acquisition of AmMed, which totaled $7.5 million, is deductible for tax purposes. The goodwill related to the remaining 2012 acquisitions is not deductible for tax purposes.
10
A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated during the six months ended June 30, 2012 is as follows (in thousands):
eScreen | Other | Total | ||||||||||
Current assets (1) |
$ | 32,858 | $ | 2,177 | $ | 35,035 | ||||||
Property, plant and equipment |
5,664 | 1,552 | 7,216 | |||||||||
Goodwill |
165,832 | 10,228 | 176,060 | |||||||||
Intangible assets |
221,000 | 26,875 | 247,875 | |||||||||
Other non-current assets |
480 | | 480 | |||||||||
|
|
|
|
|
|
|||||||
Total assets acquired |
425,834 | 40,832 | 466,666 | |||||||||
|
|
|
|
|
|
|||||||
Current liabilities |
22,658 | 1,721 | 24,379 | |||||||||
Non-current liabilities |
86,558 | 6,330 | 92,888 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities assumed |
109,216 | 8,051 | 117,267 | |||||||||
|
|
|
|
|
|
|||||||
Net assets acquired |
316,618 | 32,781 | 349,399 | |||||||||
Less: |
||||||||||||
Contingent consideration |
44,500 | 1,000 | 45,500 | |||||||||
|
|
|
|
|
|
|||||||
Cash paid |
$ | 272,118 | $ | 31,781 | $ | 303,899 | ||||||
|
|
|
|
|
|
(1) | Includes cash acquired of approximately $2.0 million. |
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 | $ | 8,403 | $ | 101,603 | 22.3 years | |||||||||
Trademarks and trade names |
17,300 | 530 | 17,830 | 19.5 years | ||||||||||||
Customer relationships |
95,500 | 17,942 | 113,442 | 20.4 years | ||||||||||||
Other |
15,000 | | 15,000 | 10.0 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 221,000 | $ | 26,875 | $ | 247,875 | ||||||||||
|
|
|
|
|
|
(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 a fair value of $1.5 million in debt forgiveness.
| 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. |
| 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. |
11
| 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) |
| 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 six months ended June 30, 2011 included revenue totaling approximately $6.7 million and $9.7 million, respectively, related to these businesses. Goodwill has been recognized in all of the acquisitions, with the exception of 1 Medical, and amounted to approximately $363.0 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.
12
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) |
$ | 134,120 | ||
Property, plant and equipment |
68,474 | |||
Goodwill |
363,039 | |||
Intangible assets |
416,624 | |||
Other non-current assets |
27,679 | |||
|
|
|||
Total assets acquired |
1,009,936 | |||
|
|
|||
Current liabilities |
90,209 | |||
Non-current liabilities |
129,810 | |||
|
|
|||
Total liabilities assumed |
220,019 | |||
|
|
|||
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 cash acquired of approximately $23.2 million. |
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-compete 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 | ||||||
|
|
13
(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 June 30, 2012 |
Exit Costs Since Inception |
||||||||||||||||
Acquisition of Matria Healthcare, Inc.: |
||||||||||||||||||||
Severance-related costs |
$ | 68 | $ | | $ | | $ | 68 | $ | 13,664 | ||||||||||
Facility costs |
395 | (111 | ) | (71 | ) | 213 | 4,674 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs for Matria Healthcare, Inc. |
463 | (111 | ) | (71 | ) | 281 | 18,338 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Acquisition of Cholestech Corporation: |
||||||||||||||||||||
Severance-related costs |
| | | | 5,845 | |||||||||||||||
Facility costs |
1,304 | | (112 | ) | 1,192 | 2,732 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs for Cholestech Corporation |
1,304 | | (112 | ) | 1,192 | 8,577 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs for all plans |
$ | 1,767 | $ | (111 | ) | $ | (183 | ) | $ | 1,473 | $ | 26,915 | ||||||||
|
|
|
|
|
|
|
|
|
|
(1) | These adjustments resulted in a change in the aggregate purchase price and related goodwill for each related acquisition. |
Of the total $1.5 million liability outstanding as of June 30, 2012, $0.5 million is included in accrued expenses and other current liabilities and $1.0 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 six months ended June 30, 2012 and 2011 (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
Statement of Operations Caption |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Cost of net revenue |
$ | 25 | $ | 880 | $ | 989 | $ | 2,230 | ||||||||
Research and development |
14 | 416 | 638 | 434 | ||||||||||||
Sales and marketing |
200 | 1,862 | 1,027 | 2,874 | ||||||||||||
General and administrative |
1,126 | 7,140 | 4,239 | 10,959 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
1,365 | 10,298 | 6,893 | 16,497 | ||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs |
50 | 73 | 110 | 122 | ||||||||||||
Equity earnings of unconsolidated entities, net of tax |
| 142 | | 335 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total charges |
$ | 1,415 | $ | 10,513 | $ | 7,003 | $ | 16,954 | ||||||||
|
|
|
|
|
|
|
|
14
(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. The following table summarizes the restructuring activities related to our 2012 restructuring plans for the three and six months ended June 30, 2012 (in thousands):
Three Months Ended June 30, 2012 | ||||||||||||
Professional Diagnostics |
Health Management |
Total | ||||||||||
Severance-related costs |
$ | 345 | $ | 422 | $ | 767 | ||||||
Facility and transition costs |
| 125 | 125 | |||||||||
|
|
|
|
|
|
|||||||
Cash charges |
345 | 547 | 892 | |||||||||
Other non-cash charges |
| (5 | ) | (5 | ) | |||||||
|
|
|
|
|
|
|||||||
Total charges |
$ | 345 | $ | 542 | $ | 887 | ||||||
|
|
|
|
|
|
Six Months Ended June 30, 2012 | ||||||||||||
Professional Diagnostics |
Health Management |
Total | ||||||||||
Severance-related costs |
$ | 2,318 | $ | 1,219 | $ | 3,537 | ||||||
Facility and transition costs |
| 125 | 125 | |||||||||
|
|
|
|
|
|
|||||||
Cash charges |
2,318 | 1,344 | 3,662 | |||||||||
Other non-cash charges |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total charges |
$ | 2,318 | $ | 1,344 | $ | 3,662 | ||||||
|
|
|
|
|
|
We anticipate incurring approximately $0.2 million in additional costs under our 2012 restructuring plan related to our professional diagnostics business segment in Brazil and may develop additional plans over the remainder of 2012. As of June 30, 2012, $1.5 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 the 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., or GeneCare, 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 six months ended June 30, 2012 and 2011 and since inception (in thousands):
Professional Diagnostics
Three Months Ended June 30, |
Six Months Ended June 30, |
Since | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | Inception | ||||||||||||||||
Severance-related costs |
$ | 310 | $ | 2,564 | $ | 2,275 | $ | 3,601 | $ | 14,322 | ||||||||||
Facility and transition costs |
85 | | 734 | | 1,095 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash charges |
395 | 2,564 | 3,009 | 3,601 | 15,417 | |||||||||||||||
Fixed asset and inventory impairments |
| 92 | 134 | 616 | 793 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charges |
$ | 395 | $ | 2,656 | $ | 3,143 | $ | 4,217 | $ | 16,210 | ||||||||||
|
|
|
|
|
|
|
|
|
|
15
Health Management
Three Months Ended June 30, |
Six Months Ended June 30, |
Since | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | Inception | ||||||||||||||||
Severance-related costs |
$ | | $ | 945 | $ | | $ | 2,192 | $ | 2,254 | ||||||||||
Facility and transition costs |
(3 | ) | 3,807 | (89 | ) | 3,807 | 6,252 | |||||||||||||
Other exit costs |
19 | | 44 | | 138 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash charges |
16 | 4,752 | (45 | ) | 5,999 | 8,644 | ||||||||||||||
Fixed asset and inventory impairments |
85 | 804 | 85 | 804 | 949 | |||||||||||||||
Intangible asset impairments |
| | | 2,935 | 2,935 | |||||||||||||||
Other non-cash charges |
| 812 | | 812 | 761 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charges |
$ | 101 | $ | 6,368 | $ | 40 | $ | 10,550 | $ | 13,289 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Corporate and Other
Three Months Ended June 30, |
Six Months Ended June 30, |
Since | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | Inception | ||||||||||||||||
Severance-related costs |
$ | 9 | $ | 1,048 | $ | 26 | $ | 1,048 | $ | 1,219 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash charges |
9 | 1,048 | 26 | 1,048 | 1,219 | |||||||||||||||
Fixed asset and inventory impairments |
| 2 | | 2 | 3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charges |
$ | 9 | $ | 1,050 | $ | 26 | $ | 1,050 | $ | 1,222 | ||||||||||
|
|
|
|
|
|
|
|
|
|
We anticipate incurring approximately $2.9 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 $1.0 million in additional costs under these plans related to our health management business segment, primarily related to facility lease obligations through 2014. As of June 30, 2012, $3.0 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 six months ended June 30, 2012 and 2011 and since inception (in thousands):
Professional Diagnostics
Three Months Ended June 30, |
Six Months Ended June 30, |
Since | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | Inception | ||||||||||||||||
Severance-related costs |
$ | | $ | 43 | $ | | $ | 78 | $ | 8,897 | ||||||||||
Facility and transition costs |
76 | 181 | 150 | 563 | 8,462 | |||||||||||||||
Other exit costs |
17 | 37 | 36 | 46 | 4,454 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash charges |
93 | 261 | 186 | 687 | 21,813 | |||||||||||||||
Fixed asset and inventory impairments |
| | | | 10,309 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charges |
$ | 93 | $ | 261 | $ | 186 | $ | 687 | $ | 32,122 | ||||||||||
|
|
|
|
|
|
|
|
|
|
16
Health Management
Three Months Ended June 30, |
Six Months Ended June 30, |
Since | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | Inception | ||||||||||||||||
Severance-related costs |
$ | | $ | | $ | | $ | | $ | 4,647 | ||||||||||
Facility and transition costs |
(84 | ) | | (84 | ) | 39 | 2,392 | |||||||||||||
Other exit costs |
14 | 36 | 30 | 76 | 318 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash charges |
(70 | ) | 36 | (54 | ) | 115 | 7,357 | |||||||||||||
Fixed asset and inventory impairments |
| | | | 165 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charges |
$ | (70 | ) | $ | 36 | $ | (54 | ) | $ | 115 | $ | 7,522 | ||||||||
|
|
|
|
|
|
|
|
|
|
We anticipate incurring an additional $1.6 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 June 30, 2012, $1.2 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 six months ended June 30, 2011 and since inception (in thousands):
Three Months Ended June 30, 2011 |
Six Months Ended June 30, 2011 |
Since Inception |
||||||||||
Severance-related costs |
$ | 19 | $ | 30 | $ | 5,797 | ||||||
Facility and transition costs |
123 | 233 | 5,396 | |||||||||
Other exit costs |
| | 283 | |||||||||
|
|
|
|
|
|
|||||||
Cash charges |
142 | 263 | 11,476 | |||||||||
Fixed asset and inventory impairments |
| 72 | 4,635 | |||||||||
|
|
|
|
|
|
|||||||
Total charges included in equity earnings of unconsolidated entities, net of tax |
$ | 142 | $ | 335 | $ | 16,111 | ||||||
|
|
|
|
|
|
We do not anticipate incurring significant additional restructuring charges under this plan.
(e) Restructuring Reserves
The following table summarizes our restructuring reserves related to the plans described above, of which $4.3 million is included in accrued expenses and other current liabilities and $1.4 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 |
5,838 | 836 | 110 | 6,784 | ||||||||||||
Payments |
(6,827 | ) | (3,030 | ) | (122 | ) | (9,979 | ) | ||||||||
Currency adjustments |
(248 | ) | (3 | ) | | (251 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, June 30, 2012 |
$ | 2,143 | $ | 3,018 | $ | 581 | $ | 5,742 | ||||||||
|
|
|
|
|
|
|
|
17
(9) Long-term Debt
We had the following long-term debt balances outstanding (in thousands):
June 30, 2012 | December 31, 2011 | |||||||
A term loans (1) |
$ | 901,563 | $ | 917,188 | ||||
B term loans |
918,063 | 922,688 | ||||||
Incremental B-1 term loans |
248,750 | 250,000 | ||||||
Incremental B-2 term loans |
197,587 | | ||||||
Secured credit facility revolving line-of-credit |
47,500 | | ||||||
3% Senior subordinated convertible notes |
150,000 | 150,000 | ||||||
9% Senior subordinated notes |
392,063 | 391,233 | ||||||
7.875% Senior notes |
246,081 | 245,621 | ||||||
8.625% Senior subordinated notes |
400,000 | 400,000 | ||||||
Other lines-of-credit |
12,416 | 19,603 | ||||||
Other |
29,849 | 32,210 | ||||||
|
|
|
|
|||||
3,543,872 | 3,328,543 | |||||||
Less: Current portion |
(54,822 | ) | (61,092 | ) | ||||
|
|
|
|
|||||
$ | 3,489,050 | $ | 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 six months ended June 30, 2012 and 2011, respectively, as follows (in thousands):
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Secured credit facility(1) |
$ | 27,097 | $ | 220 | $ | 49,948 | $ | 220 | ||||||||
Former secured credit facility(2) |
| 42,203 | (3) | | 54,257 | (3) | ||||||||||
3% Senior subordinated convertible notes |
1,246 | 1,250 | 2,492 | 2,496 | ||||||||||||
9% Senior subordinated notes |
10,363 | 9,738 | 20,717 | 19,468 | ||||||||||||
7.875% Senior notes |
5,755 | 5,369 | 11,513 | 10,734 | ||||||||||||
8.625% Senior subordinated notes |
9,275 | 8,919 | 18,549 | 17,827 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 53,736 | $ | 67,699 | $ | 103,219 | $ | 105,002 | |||||||||
|
|
|
|
|
|
|
|
(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 six months ended June 30, 2012, the amount includes $1.3 million and $2.6 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 $29.9 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 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.
18
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 (which installments we have paid in full) and continuing through March 31, 2017, 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 is the undiscounted foreign currency spot rate risk on forecasted foreign currency revenue. As of June 30, 2012 and December 31, 2011, the notional value of these contracts was approximately $1.9 million and CHF 1.2 million and $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.
19
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 June 30, 2012 |
Fair Value at December 31, 2011 |
|||||||
Foreign currency forward contracts |
Accrued expenses and other current liabilities |
$ | 10 | $ | 447 | |||||
|
|
|
|
Derivative Instruments |
Location of Gain (Loss) Recognized in Income |
Amount of Loss Recognized During the Three Months Ended June 30, 2012 |
Amount of Gain Recognized During the Three Months Ended June 30, 2011 |
|||||||
Foreign exchange forward contract |
Other comprehensive income (loss) | $ | (652 | ) | $ | 8 | ||||
Interest rate swap contracts |
Other comprehensive income (loss) | | 224 | |||||||
|
|
|
|
|||||||
Total gain (loss) |
Other comprehensive income (loss) | $ | (652 | ) | $ | 232 | ||||
|
|
|
|
Derivative Instruments |
Location of Gain Recognized in Income |
Amount of Gain Recognized During the Six Months Ended June 30, 2012 |
Amount of Gain Recognized During the Six Months Ended June 30, 2011 |
|||||||
Foreign exchange forward contract |
Other comprehensive income (loss) | $ | 455 | $ | 8 | |||||
Interest rate swap contracts |
Other comprehensive income (loss) | | 1,841 | |||||||
|
|
|
|
|||||||
Total gain |
Other comprehensive income (loss) | $ | 455 | $ | 1,849 | |||||
|
|
|
|
(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 June 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 |
June 30, 2012 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Unobservable Inputs (Level 3) |
||||||||||||
Assets: |
||||||||||||||||
Marketable securities |
$ | 3,903 | $ | 3,903 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 3,903 | $ | 3,903 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Foreign exchange forward contracts (1) |
$ | 10 | $ | | $ | 10 | $ | | ||||||||
Contingent consideration obligations (2) |
173,527 | | | 173,527 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 173,537 | $ | | $ | 10 | $ | 173,527 | ||||||||
|
|
|
|
|
|
|
|
20
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 (1) |
$ | 447 | $ | | $ | 447 | $ | | ||||||||
Contingent consideration obligations (2) |
140,047 | | | 140,047 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 140,494 | $ | | $ | 447 | $ | 140,047 | ||||||||
|
|
|
|
|
|
|
|
(1) | 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. |
(2) | 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 (decreases) in any of these inputs in isolation could result in significantly higher (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. |
Changes in the fair value of our Level 3 contingent consideration obligations during the six months ended June 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 |
45,500 | |||
Foreign currency |
89 | |||
Payments |
(10,472 | ) | ||
Present value accretion |
9,052 | |||
Adjustments, net (income) expense |
(10,689 | ) | ||
|
|
|||
Fair value of contingent consideration obligations, June 30, 2012 |
$ | 173,527 | ||
|
|
At June 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 $3.5 billion at June 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | | $ | | $ | | $ | | ||||||||
Interest cost |
199 | 205 | 397 | 407 | ||||||||||||
Expected return on plan assets |
(153 | ) | (157 | ) | (305 | ) | (312 | ) | ||||||||
Amortization of prior service costs |
104 | 108 | 208 | 214 | ||||||||||||
Realized losses |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | 150 | $ | 156 | $ | 300 | $ | 309 | ||||||||
|
|
|
|
|
|
|
|
21
(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.
We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three and six months ended June 30, 2012 and 2011 is as follows (in thousands):
Professional Diagnostics |
Health Management |
Consumer Diagnostics |
Corporate and Other |
Total | ||||||||||||||||
Three Months Ended June 30, 2012: |
||||||||||||||||||||
Net revenue |
$ | 540,110 | $ | 138,590 | $ | 21,817 | $ | | $ | 700,517 | ||||||||||
Operating income (loss) |
$ | 63,251 | $ | (12,666 | ) | $ | 2,699 | $ | (18,930 | ) | $ | 34,354 | ||||||||
Depreciation and amortization |
$ | 83,413 | $ | 24,065 | $ | 1,178 | $ | 244 | $ | 108,900 | ||||||||||
Restructuring charge |
$ | 817 | $ | 539 | $ | | $ | 9 | $ | 1,365 | ||||||||||
Stock-based compensation |
$ | | $ | | $ | | $ | 4,368 | $ | 4,368 | ||||||||||
Three Months Ended June 30, 2011: |
||||||||||||||||||||
Net revenue |
$ | 409,074 | $ | 135,572 | $ | 22,539 | $ | | $ | 567,185 | ||||||||||
Operating income (loss) |
$ | 49,304 | $ | (15,154 | ) | $ | 1,902 | $ | (19,898 | ) | $ | 16,154 | ||||||||
Depreciation and amortization |
$ | 72,343 | $ | 27,329 | $ | 1,320 | $ | 149 | $ | 101,141 | ||||||||||
Restructuring charge |
$ | 2,880 | $ | 6,368 | $ | | $ | 1,050 | $ | 10,298 | ||||||||||
Stock-based compensation |
$ | | $ | | $ | | $ | 6,181 | $ | 6,181 | ||||||||||
Six Months Ended June 30, 2012: |
||||||||||||||||||||
Net revenue |
$ | 1,058,467 | $ | 269,374 | $ | 43,805 | $ | | $ | 1,371,646 | ||||||||||
Operating income (loss) |
$ | 133,430 | $ | (32,022 | ) | $ | 3,064 | $ | (35,060 | ) | $ | 69,412 | ||||||||
Depreciation and amortization |
$ | 160,881 | $ | 47,839 | $ | 2,437 | $ | 465 | $ | 211,622 | ||||||||||
Non-cash charge associated with acquired inventory |
$ | 4,681 | $ | | $ | | $ | | $ | 4,681 | ||||||||||
Restructuring charge |
$ | 5,611 | $ | 1,256 | $ | | $ | 26 | $ | 6,893 | ||||||||||
Stock-based compensation |
$ | | $ | | $ | | $ | 8,242 | $ | 8,242 | ||||||||||
Six Months Ended June 30, 2011: |
||||||||||||||||||||
Net revenue |
$ | 824,886 | $ | 278,635 | $ | 46,128 | $ | | $ | 1,149,649 | ||||||||||
Operating income (loss) |
$ | 109,566 | $ | (27,087 | ) | $ | 5,263 | $ | (40,683 | ) | $ | 47,059 | ||||||||
Depreciation and amortization |
$ | 137,592 | $ | 55,643 | $ | 2,579 | $ | 302 | $ | 196,116 | ||||||||||
Restructuring charge |
$ | 4,858 | $ | 10,589 | $ | | $ | 1,050 | $ | 16,497 | ||||||||||
Stock-based compensation |
$ | | $ | | $ | | $ | 11,989 | $ | 11,989 | ||||||||||
Assets: |
||||||||||||||||||||
As of June 30, 2012 |
$ | 5,774,526 | $ | 545,559 | $ | 185,554 | $ | 421,816 | $ | 6,927,455 | ||||||||||
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 six months ended June 30, 2012 and 2011 (in thousands):
Professional Diagnostics Segment
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cardiology |
$ | 125,597 | $ | 132,854 | $ | 264,423 | $ | 262,709 | ||||||||
Infectious disease |
137,821 | 122,494 | 288,837 | 262,920 | ||||||||||||
Toxicology |
159,922 | 88,833 | 281,662 | 174,337 | ||||||||||||
Diabetes |
36,797 | | 64,958 | | ||||||||||||
Other |
76,736 | 60,034 | 152,442 | 114,034 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net product sales and services revenue |
536,873 | 404,215 | 1,052,322 | 814,000 | ||||||||||||
License and royalty revenue |
3,237 | 4,859 | 6,145 | 10,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Professional diagnostics net revenue |
$ | 540,110 | $ | 409,074 | $ | 1,058,467 | $ | 824,886 | ||||||||
|
|
|
|
|
|
|
|
22
Health Management Segment
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Disease and case management |
$ | 54,512 | $ | 61,222 | $ | 107,894 | $ | 122,677 | ||||||||
Wellness |
29,567 | 26,137 | 56,591 | 55,942 | ||||||||||||
Womens & childrens health |
31,313 | 28,466 | 61,084 | 57,041 | ||||||||||||
Patient self-testing services |
23,198 | 19,747 | 43,805 | 42,975 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Health management net revenue |
$ | 138,590 | $ | 135,572 | $ | 269,374 | $ | 278,635 | ||||||||
|
|
|
|
|
|
|
|
(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 $3.7 million and $2.5 million as of June 30, 2012 and December 31, 2011, respectively. Included in the $3.7 million receivable balance as of June 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 $14.1 million and $15.5 million as of June 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 and other current assets on our accompanying consolidated balance sheets in the amount of $7.0 million and $7.3 million as of June 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 $14.5 million and $31.6 million during the three and six months ended June 30, 2012, respectively, and $16.3 million and $32.6 million during the three and six months ended June 30, 2011, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.6 million during the three and six months ended June 30, 2012, respectively, and $0.3 million and $0.6 million during the three and six months ended June 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 $6.4 million and $8.9 million of trade receivables which are included in accounts receivable on our accompanying consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively, and $17.6 million and $19.3 million of trade accounts payable which are included in accounts payable on our accompanying consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively. During the six months ended June 30, 2012, we received $6.1 million in cash from SPD as a return of capital.
(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.
23
(b) Acquisition-related Contingent Consideration Obligations
The following summarizes our principal contractual acquisition-related contingent consideration obligations as of June 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 is $2.0 million.
| 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 for 2011 sales over 2011 expenses rather than EBITDA. This new criteria 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, 2011. $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 may be made based on incremental cash collections for 2011 sales received prior to August 31, 2012. The maximum potential remaining amount of the earn-out payments for both the 2011 and 2012 calendar years is approximately $11.9 million.
| 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.
| 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.
(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. We also implemented interim quality control release specifications and agreed to implement final, tighter quality control release specifications by September 30, 2012. In June 2012, the FDA closed the inspection, and we received inspectional observations on FDA Form 483. We have provided the FDA with a written response to the 483 that describes proposed actions for resolving each of the inspectional observations. We have already completed a number of these actions and are working to implement the others. In addition, we are in the process of implementing product and process changes which we hope will ultimately improve manufacturing yield rates under both the interim release specifications, which we have been shipping against since early April 2012, and the final release specifications, which have not yet been determined. Because our average manufacturing yields under the interim release standards for certain Alere Triage meter-based products, most notably our cardiac panel and toxicology tests, have generally been lower than our average yields under previous standards, we have increased production substantially in order to increase the available supply of those products. These efforts have increased our manufacturing costs, and we expect that our costs will continue to increase as we prepare to meet the final release specifications due to be implemented by September 30, 2012. We expect to continue to experience supply constraints and increased manufacturing costs during the remainder of 2012 despite our increases in production.
24
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 action, if any, the government will take in connection with these matters. Also, except for anticipated 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 Adopted Standards
Effective January 1, 2012, we adopted Accounting Standards Update, or 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.
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 nor do the amendments 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 IFRS, 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) 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 $3.3 million and $6.1 million during the three and six months ended June 30, 2012, respectively, and we recorded losses of $0.9 million and $0.5 million during the three and six months ended June 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 SPDs net income (losses) for the respective periods.
25
(b) 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 $0.5 million and $1.2 million during the three and six months ended June 30, 2012, respectively, and we recorded earnings of $0.6 million and $1.2 million during the three and six months ended June 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 TechLabs net income for the respective periods.
Summarized financial information for SPD and TechLab on a combined basis is as follows (in thousands):
Combined Condensed Results of Operations:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net revenue |
$ | 58,308 | $ | 61,088 | $ | 110,833 | $ | 116,642 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
$ | 35,585 | $ | 36,900 | $ | 70,764 | $ | 72,365 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) after taxes |
$ | 7,691 | $ | (550 | ) | $ | 14,684 | $ | 1,284 | |||||||
|
|
|
|
|
|
|
|
Combined Condensed Balance Sheets:
June 30, 2012 | December 31, 2011 | |||||||
Current assets |
$ | 81,312 | $ | 84,376 | ||||
Non-current assets |
39,651 | 37,659 | ||||||
|
|
|
|
|||||
Total assets |
$ | 120,963 | $ | 122,035 | ||||
|
|
|
|
|||||
Current liabilities |
$ | 47,344 | $ | 49,453 | ||||
Non-current liabilities |
7,091 | 6,326 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 54,435 | $ | 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 June 30, 2012 and December 31, 2011, the related statements of operations and statements of comprehensive income for each of the three and six months ended June 30, 2012 and 2011, respectively, and the statements of cash flows for the six months ended June 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.
26
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2012
(in thousands)
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net product sales |
$ | | $ | 202,249 | $ | 290,714 | $ | (29,538 | ) | $ | 463,425 | |||||||||
Services revenue |
| 152,856 | 80,999 | | 233,855 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net product sales and services revenue |
| 355,105 | 371,713 | (29,538 | ) | 697,280 | ||||||||||||||
License and royalty revenue |
| 9,536 | 2,656 | (8,955 | ) | 3,237 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net revenue |
| 364,641 | 374,369 | (38,493 | ) | 700,517 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales |
857 | 94,152 | 156,513 | (29,024 | ) | 222,498 | ||||||||||||||
Cost of services revenue |
| 79,691 | 40,868 | | 120,559 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales and services revenue |
857 | 173,843 | 197,381 | (29,024 | ) | 343,057 | ||||||||||||||
Cost of license and royalty revenue |
| | 10,807 | (8,955 | ) | 1,852 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net revenue |
857 | 173,843 | 208,188 | (37,979 | ) | 344,909 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
(857 | ) | 190,798 | 166,181 | (514 | ) | 355,608 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
5,873 | 17,186 | 17,388 | | 40,447 | |||||||||||||||
Sales and marketing |
819 | 77,219 | 81,284 | | 159,322 | |||||||||||||||
General and administrative |
14,567 | 46,670 | 60,248 | | 121,485 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
21,259 | 141,075 | 158,920 | | 321,254 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(22,116 | ) | 49,723 | 7,261 | (514 | ) | 34,354 | |||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs |
(53,969 | ) | (10,879 | ) | (3,883 | ) | 13,200 | (55,531 | ) | |||||||||||
Other income (expense), net |
3,988 | 15,837 | (2,814 | ) | (13,200 | ) | 3,811 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before provision (benefit) for income taxes |
(72,097 | ) | 54,681 | 564 | (514 | ) | (17,366 | ) | ||||||||||||
Provision (benefit) for income taxes |
(19,750 | ) | 23,233 | (3,855 | ) | (117 | ) | (489 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before equity earnings of unconsolidated entities, net of tax |
(52,347 | ) | 31,448 | 4,419 | (397 | ) | (16,877 | ) | ||||||||||||
Equity in earnings of subsidiaries, net of tax |
38,982 | (185 | ) | | (38,797 | ) | | |||||||||||||
Equity earnings of unconsolidated entities, net of tax |
486 | | 3,502 | 10 | 3,998 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(12,879 | ) | 31,263 | 7,921 | (39,184 | ) | (12,879 | ) | ||||||||||||
Less: Net income attributable to non-controlling interests |
| | 36 | | 36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to Alere Inc. and Subsidiaries |
(12,879 | ) | 31,263 | 7,885 | (39,184 | ) | (12,915 | ) | ||||||||||||
Preferred stock dividends |
(5,279 | ) | | | | (5,279 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to common stockholders |
$ | (18,158 | ) | $ | 31,263 | $ | 7,885 | $ | (39,184 | ) | $ | (18,194 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
27
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2011
(in thousands)
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net product sales |
$ | | $ | 216,256 | $ | 214,803 | $ | (32,254 | ) | $ | 398,805 | |||||||||
Services revenue |
| 147,007 | 16,568 | | 163,575 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net product sales and services revenue |
| 363,263 | 231,371 | (32,254 | ) | 562,380 | ||||||||||||||
License and royalty revenue |
| 2,746 | 3,920 | (1,861 | ) | 4,805 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net revenue |
| 366,009 | 235,291 | (34,115 | ) | 567,185 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales |
659 | 101,244 | 120,279 | (31,849 | ) | 190,333 | ||||||||||||||
Cost of services revenue |
| 76,100 | 6,395 | | 82,495 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales and services revenue |
659 | 177,344 | 126,674 | (31,849 | ) | 272,828 | ||||||||||||||
Cost of license and royalty revenue |
| | 3,490 | (1,861 | ) | 1,629 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net revenue |
659 | 177,344 | 130,164 | (33,710 | ) | 274,457 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
(659 | ) | 188,665 | 105,127 | (405 | ) | 292,728 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
5,237 | 15,889 | 20,222 | | 41,348 | |||||||||||||||
Sales and marketing |
298 | 83,954 | 56,136 | | 140,388 | |||||||||||||||
General and administrative |
13,737 | 59,626 | 21,475 | | 94,838 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
19,272 | 159,469 | 97,833 | | 276,574 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(19,931 | ) | 29,196 | 7,294 | (405 | ) | 16,154 | |||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs |
(35,845 | ) | (46,875 | ) | (3,863 | ) | 18,021 | (68,562 | ) | |||||||||||
Other income (expense), net |
2,341 | 12,634 | 3,483 | (18,021 | ) | 437 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before provision (benefit) for income taxes |
(53,435 | ) | (5,045 | ) | 6,914 | (405 | ) | (51,971 | ) | |||||||||||
Provision (benefit) for income taxes |
(44,788 | ) | (81 | ) | 2,133 | | (42,736 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before equity earnings (losses) of unconsolidated entities, net of tax |
(8,647 | ) | (4,964 | ) | 4,781 | (405 | ) | (9,235 | ) | |||||||||||
Equity in earnings of subsidiaries, net of tax |
(1,484 | ) | 655 | | 829 | | ||||||||||||||
Equity earnings (losses) of unconsolidated entities, net of tax |
689 | | (842 | ) | (54 | ) | (207 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(9,442 | ) | (4,309 | ) | 3,939 | 370 | (9,442 | ) | ||||||||||||
Less: Net loss attributable to non-controlling interests |
| | (40 | ) | | (40 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to Alere Inc. and Subsidiaries |
(9,442 | ) | (4,309 | ) | 3,979 | 370 | (9,402 | ) | ||||||||||||
Preferred stock dividends |
(5,515 | ) | | | | (5,515 | ) | |||||||||||||
Preferred stock repurchase |
10,248 | | | | 10,248 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) available to common stockholders |
$ | (4,709 | ) | $ | (4,309 | ) | $ | 3,979 | $ | 370 | $ | (4,669 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
28
CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2012
(in thousands)
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net product sales |
$ | | $ | 421,465 | $ | 580,514 | $ | (62,767 | ) | $ | 939,212 | |||||||||
Services revenue |
| 298,989 | 127,300 | | 426,289 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net product sales and services revenue |
| 720,454 | 707,814 | (62,767 | ) | 1,365,501 | ||||||||||||||
License and royalty revenue |
| 13,765 | 5,277 | (12,897 | ) | 6,145 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net revenue |
| 734,219 | 713,091 | (75,664 | ) | 1,371,646 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales |
1,707 | 198,073 | 310,392 | (62,120 | ) | 448,052 | ||||||||||||||
Cost of services revenue |
| 157,394 | 54,025 | | 211,419 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of net product sales and services revenue |
1,707 | 355,467 | 364,417 | (62,120 | ) | 659,471 | ||||||||||||||
Cost of license and royalty revenue |
| | 16,393 | (12,897 | ) | 3,496 | ||||||||||||||
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Cost of net revenue |
1,707 | 355,467 | 380,810 | (75,017 | ) | 662,967 | ||||||||||||||
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Gross profit (loss) |
(1,707 | ) | 378,752 | 332,281 | (647 | ) | 708,679 | |||||||||||||
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Operating expenses: |
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Research and development |
11,069 | 33,762 | 34,616 | | 79,447 | |||||||||||||||
Sales and marketing |
1,876 | 154,778 | 161,246 | | 317,900 | |||||||||||||||
General and administrative |
26,198 | 104,971 | 110,751 | | 241,920 | |||||||||||||||
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Total operating expenses |
39,143 | 293,511 | 306,613 | | 639,267 | |||||||||||||||
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Operating income (loss) |
(40,850 | ) | 85,241 | 25,668 | (647 | ) | 69,412 | |||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs |
(103,685 | ) | (21,885 | ) | (7,198 | ) | 26,510 | (106,258 | ) | |||||||||||
Other income (expense), net |
(4,086 | ) | 25,265 | 20,973 | (26,510 | ) | 15,642 | |||||||||||||
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Income (loss) before provision (benefit) for income taxes |
(148,621 | ) | 88,621 | 39,443 | (647 | ) | (21,204 | ) | ||||||||||||
Provision (benefit) for income taxes |
(46,748 | ) | 35,538 | 9,312 | (46 | ) | (1,944 | ) | ||||||||||||
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Income (loss) before equity earnings of unconsolidated entities, net of tax |
(101,873 | ) | 53,083 | 30,131 | (601 | ) | (19,260 | ) | ||||||||||||
Equity in earnings of subsidiaries, net of tax |
88,877 | (533 | ) | | (88,344 | ) | | |||||||||||||
Equity earnings of unconsolidated entities, net of tax |
1,146 | | 6,238 | 26 | 7,410 | |||||||||||||||
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Net income (loss) |
(11,850 | ) | 52,550 | 36,369 | (88,919 | ) | (11,850 | ) | ||||||||||||
Less: Net loss attributable to non-controlling interests |