Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2016

OR

 

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 001-16789

 

 

 

LOGO

ALERE INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   04-3565120

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices) (Zip code)

(781) 647-3900

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of August 30, 2016 was 86,740,318.

 

 

 


Table of Contents

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended June 30, 2016

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 for the fiscal year ended December 31, 2015 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 forward-looking statements and these risk factors, and should not place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

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

TABLE OF CONTENTS

 

         PAGE  

PART I. FINANCIAL INFORMATION

     3   

Item 1.

 

Financial Statements (unaudited)

     3   
 

a) Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

     3   
 

b) Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015

     4   
 

c) Consolidated Balance Sheets as of June 30, 2016 and December  31, 2015

     5   
 

d) Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2016 and 2015

     6   
 

e) Notes to Consolidated Financial Statements

     7   

Item 2.

 

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

     41   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     55   

Item 4.

 

Controls and Procedures

     55   

PART II. OTHER INFORMATION

     57   

Item 1.

  Legal Proceedings      57   

Item 1A.

 

Risk Factors

     59   

Item 3.

  Default Upon Senior Securities      59   

Item 6.

  Exhibits      59   

SIGNATURE

     61   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2016     2015     2016     2015  

Net product sales

   $ 483,746      $ 491,049      $ 943,517      $ 975,387   

Services revenue

     124,809        126,628        240,518        250,484   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     608,555        617,677        1,184,035        1,225,871   

License and royalty revenue

     2,533        5,694        5,262        10,392   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     611,088        623,371        1,189,297        1,236,263   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     250,398        257,893        487,859        497,994   

Cost of services revenue

     78,294        76,800        151,394        152,426   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     328,692        334,693        639,253        650,420   

Cost of license and royalty revenue

     535        1,344        1,926        3,294   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     329,227        336,037        641,179        653,714   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     281,861        287,334        548,118        582,549   

Operating expenses:

        

Research and development

     28,446        27,198        55,508        55,214   

Sales and marketing

     102,516        108,024        202,329        217,103   

General and administrative

     128,354        61,173        243,310        153,864   

Impairment and (gain) loss on dispositions, net

     —          5,542        (3,810     40,334   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     22,545        85,397        50,781        116,034   

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

     (42,329     (59,494     (84,435     (105,925

Other income (expense), net

     (14,112     3,195        (15,461     828   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (33,896     29,098        (49,115     10,937   

Provision (benefit) for income taxes

     3,117        15,689        2,909        7,836   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (37,013     13,409        (52,024     3,101   

Equity earnings of unconsolidated entities, net of tax

     2,122        1,361        7,156        5,320   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (34,891     14,770        (44,868     8,421   

Income from discontinued operations, net of tax

     —         —         —          216,777   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (34,891     14,770        (44,868     225,198   

Less: Net income attributable to non-controlling interests

     143        359        246        447   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (35,034     14,411        (45,114     224,751   

Preferred stock dividends

     (5,308     (5,308     (10,617     (10,558
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (40,342   $ 9,103      $ (55,731   $ 214,193   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per common share:

        

Income (loss) from continuing operations

   $ (0.46   $ 0.11      $ (0.64   $ (0.03

Income from discontinued operations

     —         —         —          2.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ (0.46   $ 0.11      $ (0.64   $ 2.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per common share:

        

Income (loss) from continuing operations

   $ (0.46   $ 0.11      $ (0.64   $ (0.03

Income from discontinued operations

     —         —         —          2.56   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ (0.46   $ 0.11      $ (0.64   $ 2.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares — basic

     86,737        85,173        86,692        84,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares — diluted

     86,737        86,635        86,692        84,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2016     2015     2016     2015  

Net income (loss)

   $ (34,891   $ 14,770      $ (44,868   $ 225,198   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

        

Changes in cumulative translation adjustment

     (44,135     46,726        (21,942     (33,616

Minimum pension liability adjustment

     531        (374     686        (1,756
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     (43,604     46,352        (21,256     (35,372
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (43,604     46,352        (21,256     (35,372
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (78,495     61,122        (66,124     189,826   

Less: Comprehensive income attributable to non-controlling interests

     143        359        246        447   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (78,638   $ 60,763      $ (66,370   $ 189,379   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

 

     June 30, 2016     December 31, 2015  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 506,164      $ 502,200   

Restricted cash

     5,662        5,694   

Marketable securities

     74        164   

Accounts receivable, net of allowances of $92,983 and $89,701 at June 30, 2016 and December 31, 2015, respectively

     427,222        445,833   

Inventories, net

     333,846        347,001   

Prepaid expenses and other current assets

     162,339        152,233   

Assets held for sale – current

     —          4,165   
  

 

 

   

 

 

 

Total current assets

     1,435,307        1,457,290   

Property, plant and equipment, net

     438,787        446,039   

Goodwill

     2,811,545        2,836,915   

Other intangible assets with indefinite lives

     28,279        28,110   

Finite-lived intangible assets, net

     909,208        997,281   

Restricted cash

     42,589        43,228   

Other non-current assets

     16,290        18,078   

Investments in unconsolidated entities

     74,511        65,333   

Deferred tax assets

     18,638        13,993   

Non-current income tax receivable

     3,517        3,517   

Assets held for sale – non-current

     12,223        13,337   
  

 

 

   

 

 

 

Total assets

   $ 5,790,894      $ 5,923,121   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

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

   $ 43,681      $ 199,992   

Current portion of capital lease obligations

     3,500        3,962   

Accounts payable

     194,235        195,752   

Accrued expenses and other current liabilities

     320,526        324,465   

Liabilities related to assets held for sale – current

     —          363   
  

 

 

   

 

 

 

Total current liabilities

     561,942        724,534   
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of current portion

     2,920,789        2,831,166   

Capital lease obligations, net of current portion

     6,972        7,181   

Deferred tax liabilities

     140,864        147,618   

Other long-term liabilities

     148,165        154,193   
  

 

 

   

 

 

 

Total long-term liabilities

     3,216,790        3,140,158   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Series B preferred stock, $0.001 par value (liquidation preference: $709,701 at June 30, 2016 and $709,763 at December 31, 2015); Authorized: 2,300 shares; Issued: 2,065 shares at June 30, 2016 and December 31, 2015; Outstanding: 1,774 shares at June 30, 2016 and December 31, 2015

     606,406        606,468   

Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 94,419 shares at June 30, 2016 and 94,043 shares at December 31, 2015; Outstanding: 86,740 shares at June 30, 2016 and 86,364 shares at December 31, 2015

     94        94   

Additional paid-in capital

     3,458,639        3,438,732   

Accumulated deficit

     (1,511,481     (1,466,381

Treasury stock, at cost, 7,679 shares at June 30, 2016 and December 31, 2015

     (184,971     (184,971

Accumulated other comprehensive loss

     (361,033     (339,777
  

 

 

   

 

 

 

Total stockholders’ equity

     2,007,654        2,054,165   

Non-controlling interests

     4,508        4,264   
  

 

 

   

 

 

 

Total equity

     2,012,162        2,058,429   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 5,790,894      $ 5,923,121   
  

 

 

   

 

 

 

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

 

5


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Six Months Ended June 30,  
     2016     2015  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ (44,868   $ 225,198   

Income from discontinued operations, net of tax

     —          216,777   
  

 

 

   

 

 

 

Income (loss) from continuing operations

     (44,868     8,421   

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

    

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

     5,261        7,784   

Depreciation and amortization

     142,405        147,103   

Non-cash stock-based compensation expense

     20,607        12,279   

Impairment of inventory

     870        68   

Impairment of long-lived assets

     633        387   

Loss on disposition of fixed assets

     4,235        3,318   

Equity earnings of unconsolidated entities, net of tax

     (7,156     (5,320

Gain on sales of marketable securities

     —          (8

Deferred income taxes

     (13,210     (42,171

(Gain) loss related to impairment and net loss on dispositions

     (3,810     40,334   

(Gain) loss on extinguishment of debt

     —          3,480   

Other non-cash items

     9,720        (2,332

Non-cash change in fair value of contingent purchase price consideration

     (1,780     (52,867

Changes in assets and liabilities, net of acquisitions:

    

Accounts receivable, net

     20,023        (18,016

Inventories, net

     (5,820     (45,219

Prepaid expenses and other current assets

     (24,881     (27,077

Accounts payable

     (1     (23,251

Accrued expenses and other current liabilities

     (1,676     23,052   

Other non-current liabilities

     (6,106     8,536   

Cash paid for contingent purchase price consideration

     (324     (3,781
  

 

 

   

 

 

 

Net cash provided by continuing operations

     94,122        34,720   

Net cash provided by discontinued operations

     —          318   
  

 

 

   

 

 

 

Net cash provided by operating activities

     94,122        35,038   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Increase in restricted cash

     (449     (424,025

Purchases of property, plant and equipment

     (32,318     (47,284

Proceeds from sale of property, plant and equipment

     892        1,120   

Cash received from dispositions, net of cash divested

     21,470        586,625   

Cash paid for business acquisitions, net of cash acquired

     (5,958 )     —    

Cash received from equity method investments

     2,383        14,297   

Cash received from sales of marketable securities

     90        93   

Cash paid for investments

     (184 )     —    

Decrease in other assets

     495        1,750   
  

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

     (13,579     132,576   

Net cash used in discontinued operations

     —          (209
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (13,579     132,367   
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash paid for financing costs

     (19,564     (15,731

Cash paid for contingent purchase price consideration

     (485     (6,373

Proceeds from issuance of common stock, net of issuance costs

     11,124        56,332   

Proceeds from issuance of long-term debt

     381        2,121,851   

Payments on short-term debt

     (791     (584

Payments on long-term debt

     (177,637     (2,118,264

Net (payments) proceeds under revolving credit facilities

     126,213        (126,320

Cash paid for dividends

     (10,646     (10,646

Principal payments on capital lease obligations

     (2,210     (2,910
  

 

 

   

 

 

 

Net cash used in continuing operations

     (73,615     (102,645

Net cash used in discontinued operations

     —          (76
  

 

 

   

 

 

 

Net cash used in financing activities

     (73,615     (102,721
  

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     (2,964     (1,574
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     3,964        63,110   

Cash and cash equivalents, beginning of period – continuing operations

     502,200        378,461   

Cash and cash equivalents, beginning of period – discontinued operations

     —          23,300   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

     506,164        464,871   

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

     —         —    
  

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

   $ 506,164      $ 464,871   
  

 

 

   

 

 

 

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

 

6


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation of Financial Information

The accompanying consolidated financial statements of Alere Inc. are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair statement. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, 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, 2015 included information and footnotes necessary for such presentation and were included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on August 8, 2016. 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, 2015.

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

(2) Revision of Previously Reported Consolidated Financial Statements

In connection with the preparation of our consolidated financial statements for the fiscal year ended December 31, 2015, we determined that, in fiscal years 2013 and 2014, each of the interim periods of 2014 and the first three quarters of fiscal year 2015, we had incorrectly reported the timing of recognition of certain revenue transactions for such periods. As a result, we revised our consolidated financial statements as of December 31, 2014 and for the fiscal years ended December 31, 2014 and 2013, each of the interim periods in 2014 and the first three quarters of fiscal year 2015.

Specifically, the errors in the application of U.S. GAAP rules regarding the timing of revenue recognition primarily related to: (i) transactions, principally in Africa, in which we recognized revenue when the product shipped to the distributor, but we contractually retained title in the products until the distributor paid for the products in full or the distributor was not obligated to pay us until the products were sold through to the end-user; (ii) “bill and hold” transactions, principally in China, which did not meet the criteria for revenue recognition under U.S. GAAP; and (iii) other transactions, in which we recognized revenue prior to full satisfaction of all contractual criteria for title and risk of loss passing to the customer.

These errors required adjustments to the period in which certain revenues were recognized so that such revenues were recognized in the period in which: physical delivery occurred as defined by the contractual relationship; title and risk of loss had transferred to the buyer; or the buyer had the contractual obligation to pay the amounts invoiced, as required by U.S. GAAP revenue recognition rules and our accounting policy relating to revenue recognition. The impact of these adjustments was a decrease in revenue of $5.8 million and $1.0 million for the three and six months ended June 30, 2015, respectively.

Additionally, we have reflected other out-of-period adjustments in the periods in which such adjustments originated. These adjustments were identified during the financial closing process in connection with the fiscal years ended December 31, 2014 and 2013 and the first three quarters of fiscal year 2015 but were not reflected in our prior filings because they were deemed immaterial. The financial statements included in this Quarterly Report on Form 10-Q have been adjusted to include the adjustments in the period in which these items originated. These out-of-period adjustments are treated as corrections to our prior period financial results. For the three months ended June 30, 2015 these adjustments include a $1.2 million increase in operating expenses related to a bonus accrual, a $1.1 million increase in other income and expense, net due to the measurement of a royalty obligation and the income tax impact of these adjustments. For the six months ended June 30, 2015 these adjustments include a $1.2 million increase in operating expenses related to a bonus accrual, a $2.2 million increase in other income and expense, net due to the measurement of a royalty obligation and the income tax impact of these adjustments. Although management has determined that the errors, as well as the revenue recognition issues noted in the preceding paragraphs, individually and in the aggregate, were not material to prior periods, the financial statements for the three and six months ended June 30, 2015, included herein, have been revised to correct for the impact of these items. Unless otherwise indicated, the consolidated financial information as of and for the three and six months ended June 30, 2015 presented in this Quarterly Report on Form 10-Q reflects these revisions.

 

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The following schedules reconcile the amounts as previously reported in the applicable financial statement to the corresponding revised amounts:

 

     Three Months Ended June 30, 2015  
Revised Consolidated Statement of Operations (in thousands, except per share
data)
   As Previously Reported      Adjustment      As Revised  

Net product sales

   $ 496,834       $ (5,785    $ 491,049   

Net product sales and services revenue

   $ 623,462       $ (5,785    $ 617,677   

Net revenue

   $ 629,156       $ (5,785    $ 623,371   

Cost of net product sales

   $ 258,485       $ (592    $ 257,893   

Cost of service revenue

   $ 76,753       $ 47       $ 76,800   

Cost of net product sales and services revenue

   $ 335,238       $ (545    $ 334,693   

Cost of net revenue

   $ 336,582       $ (545    $ 336,037   

Gross profit

   $ 292,574       $ (5,240    $ 287,334   

Sales and marketing

   $ 107,184       $ 840       $ 108,024   

General and administrative

   $ 60,813       $ 360       $ 61,173   

Operating income

   $ 91,837       $ (6,440    $ 85,397   

Other income (loss), net

   $ 4,260       $ (1,065    $ 3,195   

Income from continuing operations before provision for income taxes

   $ 36,603       $ (7,505    $ 29,098   

Provision for income taxes

   $ 17,701       $ (2,012    $ 15,689   

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

   $ 18,902       $ (5,493    $ 13,409   

Income from continuing operations

   $ 20,263       $ (5,493    $ 14,770   

Net income

   $ 20,263       $ (5,493    $ 14,770   

Net income attributable to Alere Inc. and Subsidiaries

   $ 19,904       $ (5,493    $ 14,411   

Net income available to common stockholders

   $ 14,596       $ (5,493    $ 9,103   

Basic and diluted income per common share: Income from continuing operations

   $ 0.17       $ (0.06 )    $ 0.11   

Basic and diluted net income per common share: Net income per common share

   $ 0.17       $ (0.06    $ 0.11   
     Six Months Ended June 30, 2015  
Revised Consolidated Statement of Operations (in thousands, except per share
data)
   As Previously Reported      Adjustment      As Revised  

Net product sales

   $ 976,433       $ (1,046    $ 975,387   

Net product sales and services revenue

   $ 1,226,917       $ (1,046    $ 1,225,871   

Net revenue

   $ 1,237,309       $ (1,046    $ 1,236,263   

Cost of net product sales

   $ 497,122       $ 872       $ 497,994   

Cost of service revenue

   $ 152,334       $ 92       $ 152,426   

Cost of net product sales and services revenue

   $ 649,456       $ 964       $ 650,420   

Cost of net revenue

   $ 652,750       $ 964       $ 653,714   

Gross profit

   $ 584,559       $ (2,010    $ 582,549   

Sales and marketing

   $ 216,263       $ 840       $ 217,103   

General and administrative

   $ 153,504       $ 360       $ 153,864   

Operating income

   $ 119,244       $ (3,210    $ 116,034   

Other income (loss), net

   $ 2,990       $ (2,162    $ 828   

Income from continuing operations before benefit for income taxes

   $ 16,309       $ (5,372    $ 10,937   

Provision for income taxes

   $ 8,915       $ (1,079    $ 7,836   

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

   $ 7,394       $ (4,293    $ 3,101   

Income from continuing operations

   $ 12,714       $ (4,293    $ 8,421   

Net income

   $ 229,491       $ (4,293    $ 225,198   

Net income attributable to Alere Inc. and Subsidiaries

   $ 229,044       $ (4,293    $ 224,751   

Net income available to common stockholders

   $ 218,486       $ (4,293    $ 214,193   

Basic and diluted income (loss) per common share: Income (loss) from continuing operations

   $ 0.02       $ (0.05    $ (0.03

Basic and diluted net income per common share: Net income per common share

   $ 2.54       $ (0.01    $ 2.53   

 

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     Three Months Ended June 30, 2015  
Revised Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported      Adjustment      As Revised  

Net income

   $ 20,263       $ (5,493    $ 14,770   

Comprehensive income

   $      66,615       $ (5,493    $      61,122   

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 66,256       $ (5,493    $ 60,763   
     Six Months Ended June 30, 2015  
Revised Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported      Adjustment      As Revised  

Net income

   $ 229,491       $ (4,293    $ 225,198   

Comprehensive income

   $ 194,119       $ (4,293    $ 189,826   

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 193,672       $ (4,293    $ 189,379   
     Six Months Ended June 30, 2015  
Revised Consolidated Statement of Cash Flows (in thousands)    As Previously Reported      Adjustment      As Revised  

Net income

   $ 229,491       $ (4,293    $ 225,198   

Income from continuing operations

   $ 12,714       $ (4,293    $ 8,421   

Depreciation and amortization

   $ 147,011       $ 92       $ 147,103   

Deferred income taxes

   $ (40,655    $ (1,516    $ (42,171

Accounts receivable, net

   $ (27,464    $ 9,448       $ (18,016

Inventories, net

   $ (46,093    $ 874       $ (45,219

Accrued expenses and other current liabilities

   $ 27,657       $ (4,605    $ 23,052   

Other non-current liabilities

   $ 6,025       $ 2,511       $ 8,536   

Net cash provided by continuing operations

   $ 32,209       $ 2,511       $ 34,720   

Net cash provided by operating activities

   $ 32,527       $ 2,511       $ 35,038   

Excess tax benefits on exercised stock options

   $ 2,511       $ (2,511    $ —     

Net cash used in continuing operations

   $ (100,134    $ (2,511    $ (102,645

Net cash used in financing activities

   $ (100,210    $ (2,511    $ (102,721

We have also reflected these corrections as applicable in our consolidated financial statements and our consolidating financial statements presented in Note 22 Guarantor Financial Information.

(3) Merger Agreement

Merger Agreement with Abbott Laboratories

On January 30, 2016, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Abbott Laboratories, or Abbott. The Merger Agreement provides for the merger of a newly formed, wholly owned subsidiary of Abbott with and into Alere, or the merger, with Alere surviving the merger as a wholly owned subsidiary of Abbott, or the surviving corporation. Under the terms of the Merger Agreement, holders of shares of our common stock will receive $56.00 in cash, without interest, in exchange for each share of common stock. Each share of our Series B Convertible Perpetual Preferred Stock, par value $0.001 per share, or Series B Preferred Stock, issued and outstanding immediately prior to the effective time of the merger will remain issued and outstanding immediately following the consummation of the merger as one share of Series B Convertible Preferred Stock, par value $0.001 per share, of the surviving corporation. The Merger Agreement was approved by our board of directors. Completion of the merger is subject to customary closing conditions, including (1) the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of all outstanding shares of our common stock, (2) there being no judgment or law enjoining or otherwise prohibiting the consummation of the merger and (3) the expiration of the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, and receipt of other required antitrust approvals. The obligation of each of the parties to consummate the merger is also conditioned on the other party’s representations and warranties being true and correct (subject to certain materiality exceptions) and the other party having performed in all material respects its obligations under the Merger Agreement. The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under certain circumstances, Alere would be required to pay Abbott a termination fee equal to $177.0 million.

On May 2, 2016, Abbott and Alere received a request for additional information, or a “second request,” from the United States Federal Trade Commission, or the FTC, relating to Abbott’s potential acquisition of Alere. The second request was issued under the HSR Act. In addition, Abbott has agreed voluntarily to provide the FTC at least 60 days advance notice before certifying substantial compliance with the second request and to extend the waiting period imposed by the HSR Act to not less than 60 days after Abbott and Alere have certified substantial compliance with the second request, unless the period is further extended voluntarily by the

 

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parties or terminated sooner by the FTC. On June 23, 2016, Abbott and Alere received a request for additional information, or a “supplemental information request,” from the Canadian Competition Bureau, or the Bureau, relating to Abbott’s potential acquisition of Alere. The supplemental information request was issued under the Competition Act of Canada, or the Competition Act. The effect of the supplemental information request is to extend the waiting period imposed by the Competition Act until 30 days after Abbott and Alere have each complied with the supplemental information request, unless the period is extended voluntarily by the parties or terminated sooner by the Bureau. Under the terms of the Merger Agreement, Abbott has agreed to make certain divestitures if necessary to obtain the consent of the antitrust authorities to the transaction contemplated by the Merger Agreement, subject to certain exceptions set forth in the Merger Agreement.

On August 25, 2016, we filed a complaint against Abbott in Delaware Chancery Court, which seeks to compel Abbott to fulfill its obligations under the terms of the Merger Agreement to take all actions necessary to promptly obtain all required antitrust approvals for the merger. The complaint alleges, among other things, that Abbott is purposefully failing to comply with its obligations set forth in the Merger Agreement related to obtaining antitrust approvals. Specifically, the complaint alleges that Abbott: (i) purposefully failed to supply information requested by the FTC “as promptly as reasonably practicable” after such requests were made, as expressly required by the Merger Agreement; (ii) purposefully failed to supply information requested and make antitrust filings pursuant to antitrust laws in various foreign jurisdictions “as promptly as reasonably practicable” after such requests were made; (iii) purposefully failed to promptly take any and all steps necessary to avoid or eliminate impediments to obtaining antitrust clearance in the United States and in various foreign jurisdictions; (iv) purposefully failed to keep Alere informed in all material respects and on a reasonably timely basis of material communications with respect to the merger with antitrust authorities in the United States and in various foreign jurisdictions; and (v) purposefully failed to cooperate and consult with Alere, as well as give due consideration to Alere’s views with respect to antitrust matters. We have asked the Delaware Chancery Court to require Abbott to specifically perform its obligations with respect to these matters, as required by the Merger Agreement.

(4) Discontinued Operations

On January 9, 2015, we completed the sale of our health management business to OptumHealth Care Solutions for a purchase price of $599.9 million. We used the net cash proceeds of the sale to repay $575.0 million in aggregate principal amount of outstanding indebtedness under our prior credit facility.

The following summarized financial information related to the health management business has been segregated from continuing operations and reported as discontinued operations in our consolidated statements of operations for the three and six months ended June 30, 2015. The results are as follows (in thousands):

 

     Three and Six Months
Ended June 30, 2015
 

Net revenue

   $ 7,373   

Cost of net revenue

     (4,413

Sales and marketing

     (996

General and administrative

     (5,001

Interest expense

     (9

Other income (expense), net

     160   

Gain on disposal

     366,191   
  

 

 

 

Income from discontinued operations before provision for income taxes

     363,305   

Provision for income taxes

     146,528   
  

 

 

 

Income from discontinued operations, net of tax

   $ 216,777   
  

 

 

 

(5) 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, 2016, our cash equivalents consisted of money market funds.

(6) 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, 2016      December 31, 2015  

Raw materials

   $ 121,904       $ 130,171   

Work-in-process

     74,206         69,178   

Finished goods

     137,736         147,652   
  

 

 

    

 

 

 
   $ 333,846       $ 347,001   
  

 

 

    

 

 

 

 

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(7) Stock-based Compensation

We recorded stock-based compensation expense in our consolidated statements of operations for the three and six months ended June 30, 2016 and 2015, respectively, as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Cost of net revenue

   $ 601       $ 287       $ 1,080       $ 540   

Research and development

     481         282         879         606   

Sales and marketing

     2,636         1,251         4,561         2,345   

General and administrative

     7,286         5,310         14,086         8,788   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 11,004       $ 7,130       $ 20,607       $ 12,279   
  

 

 

    

 

 

    

 

 

    

 

 

 

(8) 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 amounts):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Basic and diluted net income (loss) per common share:

           

Numerator:

           

Income (loss) from continuing operations

   $ (34,891    $ 14,770       $ (44,868    $ 8,421   

Preferred stock dividends

     (5,308      (5,308      (10,617      (10,558
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations attributable to common shares

     (40,199      9,462         (55,485      (2,137

Less: Net income attributable to non-controlling interest

     143         359         246         447   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries

     (40,342      9,103         (55,731      (2,584

Income from discontinued operations

     —          —           —           216,777   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common stockholders

   $ (40,342    $ 9,103       $ (55,731    $ 214,193   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted-average common shares outstanding — basic

     86,737         85,173         86,692         84,758   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding — diluted

     86,737         86,635         86,692         84,758   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income (loss) per common share:

           

Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries

   $ (0.46    $ 0.11       $ (0.64    $ (0.03

Income from discontinued operations

     —          —           —           2.56   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income (loss) per common share

   $ (0.46    $ 0.11       $ (0.64    $ 2.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income (loss) per common share:

           

Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries

   $ (0.46    $ 0.11       $ (0.64    $ (0.03

Income from discontinued operations

     —          —           —           2.56   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income (loss) per common share

   $ (0.46    $ 0.11       $ (0.64    $ 2.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Denominator:

           

Options to purchase shares of common stock

     7,329         7,627         7,329         7,627   

Warrants

     —          —           —           4   

Conversion shares related to 3% convertible senior subordinated notes

     1,687         3,411         2,549         3,411   

Conversion shares related to subordinated convertible promissory notes

     —           27         —           27   

Conversion shares related to Series B convertible preferred stock

     10,238         10,239         10,238         10,239   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     19,254         21,304         20,116         21,308   
  

 

 

    

 

 

    

 

 

    

 

 

 

(9) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

For the three and six months ended June 30, 2016, 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, 2015, Series B preferred stock dividends amounted to $5.3 million and $10.6 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, 2016, $5.3 million of Series B preferred stock dividends was accrued. As of July 15, 2016, payments have been made covering all dividend periods through June 30, 2016.

The Series B preferred stock dividends for the three and six months ended June 30, 2016 and 2015 were paid in cash in the subsequent quarters.

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

A summary of the changes in stockholders’ equity and non-controlling interests comprising total equity for the six months ended June 30, 2016 is provided below (in thousands):

 

     Six Months Ended June 30, 2016  
     Total
Stockholders’
Equity
     Non-
controlling
Interests
     Total
Equity
 

Equity, beginning of period

   $ 2,054,165       $ 4,264       $ 2,058,429   

Issuance of common stock under employee compensation plans

     11,308         —          11,308   

Net issuance of common stock to settle taxes on restricted stock units

     (1,410      —          (1,410

Preferred stock dividends

     (10,646      —          (10,646

Stock-based compensation expense

     20,607         —          20,607   

Other adjustments

     —          (2      (2

Net income (loss)

     (45,114      246         (44,868

Total other comprehensive loss

     (21,256      —          (21,256
  

 

 

    

 

 

    

 

 

 

Equity, end of period

   $ 2,007,654       $ 4,508       $ 2,012,162   
  

 

 

    

 

 

    

 

 

 

(10) Business Combinations

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

 

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

Acquisition in 2016

EDTS

On February 11, 2016, we acquired the shares of European Drug Testing Services EDTS AB, or EDTS, located in Lidingo, Sweden, a provider of services related to on-site drug testing. The aggregate purchase price was approximately $6.5 million and was paid in cash. The operating results of EDTS are included in our professional diagnostics reporting unit and business segment.

Our consolidated statements of operations for the three and six months ended June 30, 2016 included revenue totaling approximately $1.7 million and $2.6 million, respectively, related to this business. Goodwill has been recognized in the acquisition and amounted to approximately $2.1 million, which is deductible for tax purposes.

A summary of the preliminary fair values of the net assets acquired from EDTS is as follows (in thousands):

 

     Fair Value  

Current assets

   $ 1,371   

Property, plant and equipment

     115   

Goodwill

     2,065   

Intangible assets

     4,220   
  

 

 

 

Total assets acquired

   $ 7,771   
  

 

 

 

Current liabilities

   $ 1,301   
  

 

 

 

Total liabilities assumed

   $ 1,301   
  

 

 

 

Net assets acquired

   $ 6,470   
  

 

 

 

Cash paid

   $ 6,470   
  

 

 

 

The following table provides information regarding the intangible assets acquired in connection with the EDTS acquisition and their respective preliminary fair values and weighted-average useful lives (dollars in thousands):

 

     Fair Value      Weighted-
average
Useful Life
 

Core technology and patents

   $ 540         10.0 years   

Trademarks and trade names

     310         20.0 years   

Customer relationships

     2,800         14.0 years   

Non-compete agreements

     570         3.0 years   
  

 

 

    

Total intangible assets

   $ 4,220      
  

 

 

    

 

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(11) Restructuring

The following table sets forth aggregate restructuring charges recorded in our consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  

Statement of Operations Caption

   2016      2015      2016      2015  

Cost of net revenue

   $ 1,103       $ 896       $ 2,370       $ 2,399   

Research and development

     1,034         156         2,954         649   

Sales and marketing

     259         570         909         1,953   

General and administrative

     6,389         3,231         10,215         4,122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     8,785         4,853         16,448         9,123   

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

     2         6         7         13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total restructuring charges

   $ 8,787       $ 4,859       $ 16,455       $ 9,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

(a) Restructuring Plans

During 2016, management developed world-wide cost reduction plans to reduce costs and improve operational efficiencies within our professional diagnostics and corporate and other business segments, primarily impacting our manufacturing and supply chain, and research and development groups, as well as closing certain business locations in Europe and the United States. The following table summarizes the restructuring activities related to the 2016 restructuring plans, in addition to our earlier restructuring plans as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, for the three and six months ended June 30, 2016 and 2015 and since inception of these restructuring plans (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
    Since
Inception
 

Professional Diagnostics

   2016     2015     2016     2015        

Severance-related costs

   $ 3,183      $ 1,264      $ 6,274      $ 4,064      $ 44,261   

Facility and transition costs

     213        2,581        1,194        4,007        12,862   

Other exit costs

     2        6        7        13        829   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash charges

     3,398        3,851        7,475        8,084        57,952   

Fixed asset and inventory impairments

     21        445        419        454        16,372   

Other non-cash charges

     (3     —          210        —          2,192   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total professional diagnostics charges

   $ 3,416      $ 4,296      $ 8,104      $ 8,538      $ 76,516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

                              

Severance-related costs

   $ (19   $ 569      $ (4   $ 611      $ 4,273   

Facility and transition costs

     5,390        (6     8,355        (13     19,677   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total corporate and other charges

   $ 5,371      $ 563      $ 8,351      $ 598      $ 23,950   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total restructuring charges

   $ 8,787      $ 4,859      $ 16,455      $ 9,136      $ 100,466   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We anticipate incurring approximately $4.4 million and $8.0 million in additional costs under our 2016 restructuring plans related to our professional diagnostics and corporate and other business segments, respectively, primarily related to integration and operational initiatives and site closures. We may develop additional restructuring plans over the remainder of 2016. In addition, we anticipate incurring approximately $3.7 million in additional costs under earlier restructuring plans as in effect at June 30, 2016, primarily related to the closure of our manufacturing facility in Israel.

(b) Restructuring Reserves

The following table summarizes our restructuring reserves related to the plans described above, of which $9.5 million is included in accrued expenses and other current liabilities and $0.6 million is included in other long-term liabilities on our accompanying consolidated balance sheets (in thousands):

 

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

Balance, December 31, 2015

   $ 1,633       $ 1,966       $ 180       $ 3,779   

Cash charges

     6,270         9,549         7         15,826   

Payments

     (3,814      (5,645      (73      (9,532

Currency adjustments

     (18      11         —          (7
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, June 30, 2016

   $ 4,071       $ 5,881       $ 114       $ 10,066   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(12) Long-term Debt

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

 

     June 30, 2016      December 31, 2015  

A term loans(1)(2)

   $ 559,317       $ 575,746   

B term loans(1)(2)

     958,337         965,740   

Revolving loans(1)

     125,000         —     

7.25% Senior notes(2)

     442,533         446,320   

6.5% Senior subordinated notes(2)

     415,679         419,209   

6.375% Senior subordinated notes(2)

     414,033         418,133   

3% Convertible senior subordinated notes(3)

     —           149,839   

Other lines of credit

     1,335         136   

Other

     48,236         56,035   
  

 

 

    

 

 

 
     2,964,470         3,031,158   

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

     (43,681      (199,992
  

 

 

    

 

 

 

Long-term debt

   $ 2,920,789       $ 2,831,166   
  

 

 

    

 

 

 

 

(1) Incurred under our secured credit facility entered into on June 18, 2015.
(2) As discussed more fully below in this Note 12, (i) on March 31, 2016 we were in default under the credit agreement governing our secured credit facility, or the Credit Agreement, and the respective indentures governing our 7.25% senior notes, our 6.5% senior subordinated notes, our 6.375% senior subordinated notes and our 3% convertible senior subordinated notes as a result of our failure to timely furnish to the holders of such debt our annual financial statements for the year ended December 31, 2015 and (ii) we subsequently entered into an amendment to the Credit Agreement and solicited consents from the requisite holders of our senior notes and senior subordinated notes (other than holders of our 3% convertible senior subordinated notes) to waive certain defaults and extend the deadline dates for the filing and delivery, as applicable, of our Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and certain related deliverables in order to avoid events of default under the Credit Agreement and the indentures governing our notes. On June 30, 2016, we were not in default under the Credit Agreement or the indentures governing our notes. As discussed more fully below in this Note 12, in August 2016 we entered into a further amendment to the Credit Agreement with respect to our failure to timely file this Quarterly Report on Form 10-Q. At September 1, 2016, we were in default under the indentures governing our outstanding notes with respect to our failure to timely file this Quarterly Report on Form 10-Q and, by filing this Quarterly Report on Form 10-Q prior to the expiration of the applicable cure periods under the notes, we have cured this default.
(3) The principal amount of the 3% convertible senior subordinated notes is included in the short-term debt and current portion of long-term debt on our consolidated balance sheets as of December 31, 2015, as these notes matured (and were fully paid and discharged) in May 2016.

 

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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 accompanying consolidated statements of operations for the three and

six months ended June 30, 2016 and 2015 as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Secured credit facility (1)

   $ 17,834       $ 12,851       $ 34,877       $ 12,851   

Prior credit facility (2) (3)

     —           19,726         —           39,188   

7.25% Senior notes

     8,904         8,525         17,428         17,049   

6.5% Senior subordinated notes

     7,405         7,234         14,636         14,467   

6.375% Senior subordinated notes

     7,112         542         14,115         542   

8.625% Senior subordinated notes

     —           9,274         —           18,547   

3% Convertible senior subordinated convertible notes

     603         1,246         1,847         2,492   

Other

     471         96         1,532         789   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 42,329       $ 59,494       $ 84,435       $ 105,925   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes “A” term loans, “B” term loans, and revolving line of credit loans.
(2)  Includes the following loans under our prior credit facility: “A” term loans, including the “Delayed-Draw” term loans; “B” term loans, including the term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans and later converted into and consolidated into the “B” term loans; and revolving line of credit loans. For the three and six months ended June 30, 2015, the amounts include $0.3 million and $0.7 million, respectively, related to the amortization of fees paid for certain debt modifications.
(3)  Includes a $3.5 million loss on extinguishment of debt associated with our prior credit facility.

April and August 2016 Amendments to Secured Credit Facility

On April 22, 2016, we and the requisite lenders under the Credit Agreement entered into an amendment to the Credit Agreement pursuant to which the requisite lenders agreed to (i) waive certain Defaults and Events of Defaults (each as defined in the Credit Agreement) that may have occurred, are occurring or will occur, resulting from, among other things, (x) our failure to deliver to the Administrative Agents (as defined in the Credit Agreement) the financial statements and certain related deliverables for the year ended December 31, 2015 by the applicable deadline under the Credit Agreement, (y) any restatement of certain financial statements as a result of our incorrect application of revenue recognition principles for the years ended December 31, 2013, 2014 and 2015, or (z) any breach of any representation or affirmative covenant as a result of certain deliverables being incorrect when delivered, which breach is discovered as part of the audit of our financial statements for the year ended December 31, 2015, to the extent that such breach is due to our incorrect application of revenue recognition principles for the years ended December 31, 2013, 2014 and 2015, and (ii) extend the deadlines for delivery of the financial statements for the year ended December 31, 2015, the financial statements for the quarter ended March 31, 2016 and certain related deliverables. Under the terms of this amendment, we were required to deliver our unaudited financial statements for the three months ended March 31, 2016 and certain related deliverables on or before August 18, 2016. We made the required deliveries before that date. In connection with this amendment, we paid, among other fees and expenses, to each consenting lender aggregate consent fees of 0.250% of the sum of (i) the aggregate principal amount of such lender’s Term Loans (as defined in the Credit Agreement) outstanding on the effective date of the amendment and (ii) such lender’s Revolving Credit Commitment (as defined in the Credit Agreement) outstanding on the effective date of the amendment, or approximately $4.5 million in the aggregate for all consenting lenders. The amendment was deemed to be a debt modification, and therefore the payments were capitalized and will be amortized to interest expense over the remaining term of the debt. The amendment also increased the applicable interest rate margins for all loans outstanding under our secured credit facility by 0.25% per annum for the period from July 1, 2016 to the date of delivery of such financial reports and related deliverables under our secured credit facility.

On August 18, 2016, we and the requisite lenders under the Credit Agreement entered into a further amendment to the Credit Agreement pursuant to which the requisite lenders agreed to (i) waive certain Defaults and Events of Defaults (each as defined in the Credit Agreement) that may have occurred, are occurring or will occur, resulting from, among other things, our failure to deliver to the Administrative Agents (as defined in the Credit Agreement) (x) the financial statements and certain related deliverables for the three months ended March 31, 2016, which we refer to as the Q1 Financial Reports, by the applicable deadline under the Credit Agreement or (y) the financial statements and certain related deliverables for the three months ended June 30, 2016, which we refer to as the Q2 Financial Reports, by the applicable deadline under the Credit Agreement, and (ii) extend the deadline for delivery of the Q1 Financial Reports to August 25, 2016 and the deadline for the delivery of the Q2 Financial Reports to September 13, 2016. In connection with this amendment, we paid, among other fees and expenses, to each consenting lender aggregate consent fees of 0.125% of the sum of (i) the aggregate principal amount of such lender’s Term Loans outstanding on the effective date of the amendment and (ii) such lender’s Revolving Credit Commitment outstanding on the effective date of the amendment, or approximately $2.2 million in the aggregate for all consenting lenders. The amendment was deemed to be a debt modification, and therefore the payments were capitalized and will be amortized to interest expense over the remaining term of the debt.

 

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May 2016 Waivers with respect to Senior Notes and Senior Subordinated Notes

On April 29, 2016, we commenced consent solicitations relating to our 6.5% senior subordinated notes, our 6.375% senior subordinated notes and our 7.25% senior notes, which we refer to collectively as the Notes. The consent solicitations were made to holders of record of the Notes as of April 28, 2016, and such solicitations were completed on May 9, 2016. Pursuant to the consent solicitations, the requisite holders of each series of Notes agreed to extend the deadline for delivery of certain financial information and to waive, through and until 5:00 p.m., New York City time, on August 31, 2016, any default or event of default that occurred, is continuing or may occur under the indentures under which the Notes were issued (and its consequences) in connection with any failure to timely file with the SEC or to timely furnish to the relevant trustees pursuant to the indentures, our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our subsequent Quarterly Reports on Form 10-Q, or the Failures to File. In connection with the Failures to File, we paid, in May and July 2016, to each holder of Notes who validly delivered a consent aggregate cash payments equal to $15.00 for each $1,000 aggregate principal amount of such holder’s Notes, or an aggregate of $19.2 million. The waivers were deemed to be a debt modification, and therefore the payments were capitalized and will be amortized to interest expense over the remaining term of the debt.

Maturity of our 3.0% convertible senior subordinated notes

Our 3% convertible senior subordinated notes matured and were repaid in full on May 15, 2016. Based on the price of our common stock on the date of maturity, we paid all outstanding principal and accrued interest owing under such notes in cash. The aggregate amount paid to the noteholders at maturity was approximately $152.0 million, consisting of $125.0 million in cash drawn under our revolving credit facility plus $27.0 million of cash available on such date.

(13) Fair Value Measurements

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

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

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

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

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

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

Description

   June 30,
2016
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 74       $ 74       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 74       $ 74       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 55,100       $ —        $ —        $ 55,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $       55,100       $ —        $ —        $ 55,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Description

   December 31,
2015
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 164       $ 164       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 164       $ 164       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 57,744       $ —        $ —        $ 57,744   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 57,744       $ —        $ —        $ 57,744   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We determine the fair value of the contingent consideration obligations based on a probability-weighted approach derived from earn-out criteria estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The measurement is based upon significant inputs not observable in the market. Significant increases or decreases in any of these inputs could result in a significantly higher or lower fair value measurement. Changes in the fair value of these contingent consideration obligations are recorded as income or expense within operating income in our consolidated statements of operations. See Note 17(a) for additional information on the valuation of our contingent consideration obligations.

Changes in the fair value of our Level 3 contingent consideration obligations during the six months ended June 30, 2016 were as follows (in thousands):

 

Fair value of contingent consideration obligations, December 31, 2015

   $ 57,744   

Payments

     (865

Fair value adjustments

     (1,780

Foreign currency adjustments

     1   
  

 

 

 

Fair value of contingent consideration obligations, June 30, 2016

   $ 55,100   
  

 

 

 

At June 30, 2016 and December 31, 2015, 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 (including the current portion) were both $3.0 billion at June 30, 2016. The carrying amount and estimated fair value of our long-term debt (including the current portion) were $3.1 billion and $3.0 billion, respectively, at December 31, 2015. 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.

(14) 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. We currently have three reportable operating segments: (i) professional diagnostics, (ii) consumer diagnostics and (iii) 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, 2016 and 2015 is as follows (in thousands):

 

     Professional
Diagnostics
     Consumer
Diagnostics
     Corporate
and
Other
     Total  

Three Months Ended June 30, 2016:

           

Net revenue

   $ 591,294       $ 19,794       $ —        $ 611,088   

Operating income (loss)

   $ 85,535       $ 396       $ (63,386    $ 22,545   

Depreciation and amortization

   $ 66,393       $ 1,374       $ 2,134       $ 69,901   

Restructuring charge

   $ 3,414       $ —        $ 5,371       $ 8,785   

Stock-based compensation

   $ —        $ —        $ 11,004       $ 11,004   

 

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Table of Contents
     Professional
Diagnostics
     Consumer
Diagnostics
     Corporate
and
Other
     Total  

Three Months Ended June 30, 2015:

           

Net revenue

   $ 598,726       $ 24,645       $ —        $ 623,371   

Operating income (loss)

   $ 153,241       $ 1,079       $ (68,923    $ 85,397   

Impairment and (gain) loss on dispositions, net

   $ (38,836    $ —        $ 44,378       $ 5,542   

Depreciation and amortization

   $ 70,189       $ 725       $ 1,775       $ 72,689   

Restructuring charge

   $ 4,290       $ —        $ 563       $ 4,853   

Stock-based compensation

   $ —        $ —        $ 7,130       $ 7,130   

Six Months Ended June 30, 2016:

           

Net revenue

   $ 1,152,061       $ 37,236       $ —        $ 1,189,297   

Operating income (loss)

   $ 168,215       $ 563       $ (117,997    $ 50,781   

Impairment and (gain) loss on dispositions, net

   $ (3,810    $ —        $ —        $ (3,810

Depreciation and amortization

   $ 135,225       $ 2,873       $ 4,307       $ 142,405   

Restructuring charge

   $ 8,097       $ —        $ 8,351       $ 16,448   

Stock-based compensation

   $ —        $ —        $ 20,607       $ 20,607   

Six Months Ended June 30, 2015:

           

Net revenue

   $ 1,189,651       $ 46,612       $ —        $ 1,236,263   

Operating income (loss)

   $ 242,784       $ 3,283       $ (130,033    $ 116,034   

Impairment and (gain) loss on dispositions, net

   $ (40,568    $ —        $ 80,902       $ 40,334   

Depreciation and amortization

   $ 142,658       $ 1,436       $ 3,009       $ 147,103   

Restructuring charge

   $ 8,525       $ —        $ 598       $ 9,123   

Stock-based compensation

   $ —        $ —        $ 12,279       $ 12,279   

Assets:

           

As of June 30, 2016

   $ 5,572,046       $ 179,445       $ 39,403       $ 5,790,894   

As of December 31, 2015

   $ 5,619,901       $ 172,551       $ 130,669       $ 5,923,121   

The following tables summarize our net revenue from the professional diagnostics reporting segments by groups of similar products and services for the three and six months ended June 30, 2016 and 2015 (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Cardiometabolic

   $ 203,982       $ 211,672       $ 398,559       $ 412,608   

Infectious disease

     190,168         172,834         373,402         358,236   

Toxicology

     158,199         157,495         304,982         306,251   

Other

     36,412         51,031         69,856         102,164   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total professional diagnostics net product sales and services revenue

     588,761         593,032         1,146,799         1,179,259   

License and royalty revenue

     2,533         5,694         5,262         10,392   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total professional diagnostics net revenue

   $ 591,294       $ 598,726       $ 1,152,061       $ 1,189,651   
  

 

 

    

 

 

    

 

 

    

 

 

 

(15) Related Party Transactions

(a) SPD Joint Venture

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

We had a net payable to SPD of $3.7 million as of June 30, 2016 and $1.2 million as of December 31, 2015. The $3.7 million net payable balance as of June 30, 2016 is net of a receivable of approximately $1.3 million for costs incurred in connection with our 2008 SPD-related restructuring plans. The $1.2 million net payable balance as of December 31, 2015 is net of a receivable of approximately $1.5 million for costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $6.7 million and $8.9 million as of June 30, 2016 and December 31, 2015, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the formation of the joint venture have been classified as other receivables within prepaid and other current assets on our consolidated balance sheets in the

 

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amounts of $8.8 million and $7.8 million as of June 30, 2016 and December 31, 2015, 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 $21.8 million and $39.5 million during the three and six months ended June 30, 2016, respectively, and $21.7 million and $41.2 million during the three and six months ended June 30, 2015, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.5 million during the three and six months ended June 31, 2016, respectively, and $0.3 million and $0.6 million during the three and six months ended June 30, 2015, 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, SPD purchases products from our manufacturing facilities in China. SPD in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, a portion of the tests are sold to P&G for distribution to third-party customers in North America. We defer our profit on products sold to SPD until the products are sold through to the customer. As a result of these related transactions, we have recorded $11.7 million and $9.9 million of trade receivables which are included in accounts receivable on our consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively, and $31.6 million and $24.9 million of trade accounts payable which are included in accounts payable on our consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.

The following table summarizes our related party balances with SPD within our consolidated balance sheets (in thousands):

 

Balance Sheet Caption

   June 30, 2016      December 31, 2015  

Accounts receivable, net of allowances

   $ 11,670       $ 9,873   

Prepaid expenses and other current assets

   $ 8,768       $ 6,602   

Other non-current assets

   $ 6,699       $ 8,895   

Accounts payable

   $ 31,584       $ 24,887   

As previously disclosed, SPD is currently involved in civil litigation brought by a competitor in the United States with respect to the advertising of one of SPD’s products in the United States. During 2015, SPD appealed the district court’s injunction with respect to sales and advertising of such product, which was based on a finding that SPD violated certain laws with respect to the advertising of such product. The appellate court has issued a stay of the injunction, pending the outcome of the appeal. In addition, a class action lawsuit has been initiated against SPD and P&G in the United States District Court for the Central District of California, alleging violations of certain laws in connection with the sales and advertising of one of SPD’s products which claims are based on similar grounds as those at issue in the litigation described above in this paragraph. On August 19, 2016, the class action lawsuit was dismissed with prejudice. The plaintiffs may appeal the decision prior to September 19, 2016. There may be additional lawsuits against SPD or us relating to this matter in the future. The ultimate resolution of these matters is not known at this time, nor is the potential impact they or future litigation may have on SPD or us, including whether any such resolution or any damages imposed by a court would have a material adverse impact on SPD and, ultimately, by virtue of our 50% interest in SPD, on our financial position or results of operations.

(b) Entrustment Loan Arrangement with SPD Shanghai

Our subsidiary Alere (Shanghai) Diagnostics Co., Ltd., or Alere Shanghai, and SPD’s subsidiary SPD Trading (Shanghai) Co., Ltd., or SPD Shanghai, entered into an entrustment loan arrangement for a maximum of CNY 23 million (approximately $3.5 million at June 30, 2016), in order to finance the latter’s short-term working capital needs, with the Royal Bank of Scotland (China) Co., Ltd. Shanghai Branch, or RBS. The agreement governs the setting up of an Entrustment Loan Account with RBS, into which Alere Shanghai deposits certain monies. This restricted cash account provides a guarantee to RBS of amounts borrowed from RBS by SPD Shanghai. The Alere Shanghai RBS account is recorded as restricted cash on our balance sheet and amounted to $3.5 million at June 30, 2016.

(c) TechLab

We have an equity method investment in TechLab, Inc., or TechLab, a company that provides diagnostic testing products used by physicians and other health care customers to diagnose, treat, and monitor intestinal diseases and other medical conditions. We own approximately 49% of Techlab. We have also entered into an exclusive distributor agreement with Techlab. This agreement grants us the global distribution rights to Techlab’s products with certain exceptions. We had trade payables owed to Techlab of $1.5 million and $3.2 million as of June 30, 2016 and December 31, 2015, respectively. We made product purchases from Techlab of $4.5 million and $4.1 million during the three months ended June 30, 2016 and 2015, respectively, and $9.2 million and $8.5 million during the six months ended June 30, 2016 and 2015.

 

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(16) Other Arrangements

In September 2014, we entered into a contract with the U.S. Department of Health and Human Services’ Biomedical Advanced Research and Development Authority, or BARDA, to develop diagnostic countermeasures for pandemic influenza. Under the terms of the 3.5 year contract, BARDA has agreed to provide up to $12.9 million to us to support the development of a rapid, molecular, low-cost influenza diagnostic device with PCR-like performance at the point of care. The project is designed to help support future preparedness and medical response to an influenza pandemic. Funding from BARDA is subject to successful completion of various interim feasibility and development milestones as defined in the agreement. For the three months ended June 30, 2016 and 2015, we had incurred $1.0 million and $0.9 million, respectively, of qualified expenditures under the contract, for which we had received cash reimbursement from BARDA in the amount of $0.0 million and $0.5 million, respectively, and $1.0 million and $0.4 million was recorded as a receivable as of June 30, 2016 and 2015, respectively. Reimbursements of qualified expenditures under this contract are recorded as a reduction of our related qualified research and development expenditures.

In February 2013, we entered into an agreement with the Bill & Melinda Gates Foundation, or the Gates Foundation, whereby we were awarded a grant by the Gates Foundation in the amount of $21.6 million to support the development and commercialization of validated, low-cost, nucleic-acid assays and cartridges for clinical tuberculosis detection and drug-resistance testing, and adaptation of an analyzer platform capable of operation in rudimentary laboratories in low-resource settings. In connection with this agreement, we also entered into a loan agreement with the Gates Foundation, or the Gates Loan Agreement, which provided for the making of subordinated term loans by the Gates Foundation to us from time to time, subject to the achievement of certain milestones, in an aggregate principal amount of up to $20.6 million. In April 2016, we and the Gates Foundation agreed to mutually terminate this grant and loan agreement and, therefore, there will be no additional grants and no advances will be available under the loan agreement. Prior to its termination, we did not borrow any amounts under the Gates Loan Agreement. As of June 30, 2016, we had received approximately $19.7 million in grant-related funding from the Gates Foundation. Grant funds were recorded upon receipt as restricted cash and deferred grant funding, with the deferred grant funding classified within accrued expenses and other current liabilities on our accompanying consolidated balance sheet. As qualified expenditures were incurred under the terms of the grant, we used the deferred funding to recognize a reduction of our related qualified research and development expenditures. For the three months ended June 30, 2015, we incurred approximately $1.8 million of qualified expenditures, for which we reduced our deferred grant funding balance and recorded an offset to our research and development expenses. There were no amounts remaining as restricted cash or deferred grant funding under the February 2013 grant agreement as of June 30, 2016.

In addition to the February 2013 grant discussed above, we have also been awarded several smaller grants by the Gates Foundation in the aggregate amount of approximately $2.9 million to support the elimination of malaria. We incurred qualifying expenses totaling approximately $0.3 million and $0.1 million for the three months ended June 30, 2016 and 2015, respectively. We incurred qualifying expenses totaling approximately $0.5 million and $0.3 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, $1.4 million under these grants was recorded as restricted cash and $1.3 million as deferred grant funding on our accompanying consolidated balance sheet.

(17) Commitments and Contingencies

(a) Acquisition-related Contingent Consideration Obligations

We have contractual contingent purchase price consideration obligations related to certain of our acquisitions. We determine the acquisition date fair value of the contingent consideration obligations based on a probability-weighted approach derived from the overall likelihood of achieving certain performance targets, including product development milestones or financial metrics. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted earn-out payments are discounted using a discount rate based upon the weighted-average cost of capital. At each reporting date, we revalue the contingent consideration obligations to the reporting date fair values and record increases and decreases in the fair values as income or expense in our consolidated statements of operations.

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

 

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

 

Acquisition

   Acquisition Date      Acquisition
Date Fair
Value
     Maximum
Remaining
Earn-out
Potential
as of
June 30,
2016
    Remaining
Earn-out
Period as
of
June 30,
2016
    Estimated
Fair Value as
of
June 30,
2016
     Estimated
Fair Value as
of
December 31,
2015
     Payments
Made
During
2016
 

TwistDx, Inc.(1)

     March 11, 2010       $ 35,600       $ 102,870        2016 – 2025 (3)    $ 46,600       $ 47,800       $ 377   

Epocal(2)

     February 1, 2013       $ 75,000       $ 45,500        2016 – 2018        3,900         4,700         —     

Other

     Various       $ 30,373       $ —   (4)      2016        4,600         5,244         488   
            

 

 

    

 

 

    

 

 

 
             $ 55,100       $ 57,744       $ 865   
            

 

 

    

 

 

    

 

 

 

 

(1) The terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets through 2025.
(2) The terms of the acquisition agreement require us to pay earn-outs and management incentive payments upon successfully meeting certain product development and United States Food and Drug Administration regulatory approval milestones from the date of acquisition through December 31, 2018.
(3) The maximum earn-out period ends on the fifteenth anniversary of the acquisition date.
(4) The maximum remaining earn-out potential for the other acquisitions is not determinable due to the nature of one of the earn-outs, which is tied to an unlimited revenue metric.

(b) Legal Proceedings

Abbott Laboratories

On August 25, 2016, Alere Inc. filed suit against Abbott Laboratories in the Delaware Chancery Court, and filed an accompanying motion to expedite the proceedings. The complaint alleges, among other things, that Abbott is purposefully failing to comply with its obligations set forth in the Merger Agreement related to obtaining antitrust approvals. Specifically, the complaint alleges that Abbott: (i) purposefully failed to supply information requested by the FTC “as promptly as reasonably practicable” after such requests were made, as expressly required by the Merger Agreement; (ii) purposefully failed to supply information requested and make antitrust filings pursuant to antitrust laws in various foreign jurisdictions “as promptly as reasonably practicable” after such requests were made; (iii) purposefully failed to promptly take any and all steps necessary to avoid or eliminate impediments to obtaining antitrust clearance in the United States and in various foreign jurisdictions; (iv) purposefully failed to keep Alere informed in all material respects and on a reasonably timely basis of material communications with respect to the merger with antitrust authorities in the United States and in various foreign jurisdictions; and (v) purposefully failed to cooperate and consult with Alere, as well as give due consideration to Alere’s views with respect to antitrust matters. We have asked the Delaware Chancery Court to require Abbott to specifically perform its obligations with respect to these matters, as required by the Merger Agreement. On August 30, 2016, Abbott filed its response in opposition to the motion to expedite the proceedings in this matter. On September 2, 2016, the Delaware Chancery Court granted our motion to expedite the proceedings.

U.S. Securities and Exchange Commission Subpoenas

On August 28, 2015, we received a subpoena from the SEC which indicated that it is conducting a formal investigation of Alere. The SEC’s subpoena relates to, among other things, (i) our previously filed restatement and revision to our financial statements, including the accounting for deferred taxes for discontinued operations, as well as our tax strategies and policies and (ii) our sales practices and dealings with third parties (including distributors and foreign government officials) in Africa relating to sales to government entities. On January 14, 2016, we received a second subpoena from the SEC in connection with this formal investigation seeking, among other things, additional information related to sales of products and services to end-users in Africa, as well as revenue recognition relating to sales of products and services to end-users in Africa. We have also received, from time to time, requests in connection with the investigation to voluntarily produce additional information to the SEC, including information pertaining to certain other countries in Asia and Latin America.

We are cooperating with the SEC and have provided documents in response to the subpoenas and voluntary requests. We are unable to predict when this matter will be resolved or what further action, if any, the SEC may take in connection with it.

Department of Justice Grand Jury Subpoena

On March 11, 2016, we received a grand jury subpoena from the United States Department of Justice requiring the production of documents relating to, among other things, sales, sales practices and dealings with third parties (including distributors and foreign governmental officials) in Africa, Asia and Latin America and other matters related to the U.S. Foreign Corrupt Practices Act.

We are cooperating with the Department of Justice and have provided information in response to the subpoena. We are unable to predict when this matter will be resolved or what further action, if any, the Department of Justice may take in connection with it.

Securities Class Actions

On April 21, 2016, a class action lawsuit captioned Godinez v. Alere Inc., was filed against us in the United States District Court for the District of Massachusetts. On May 4, 2016, a second class action lawsuit captioned Breton v. Alere Inc., was filed against us in the United States District Court for the District of Massachusetts. Both of these class actions purport to assert claims against us and certain current and former officers for alleged violations of Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 under the Exchange Act. Each plaintiff seeks to represent a proposed class of all persons who purchased or otherwise acquired our common stock during the period May 9, 2013 through April 20, 2016. Each complaint seeks damages allegedly caused by alleged materially misleading statements and/or material omissions by us and the officers regarding our business, prospects and operations, each plaintiff claims, which allegedly operated to inflate artificially the price paid for our common stock during the class period. Each complaint seeks unspecified compensatory damages, attorneys’ fees and costs. On July 11, 2016, the court entered an order consolidating the two actions and appointing lead plaintiffs and lead counsel, and on July 19, 2016, the court ordered a schedule for the filing of a consolidated amended complaint and for the motion to dismiss briefing.

We are unable at this time to determine the outcome of this class action lawsuit or our potential liability, if any.

 

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Matters Relating to our San Diego Facility

On October 9, 2012, we received a warning letter from the FDA referencing inspectional observations set forth in a Form FDA 483 received in June 2012. The observations were the result of an inspection of our San Diego facility conducted earlier during 2012 relating to our Alere Triage products, which resulted in two recalls of certain Alere Triage products and revised release specifications for our Alere Triage meter-based products. In September 2014, as follow up to a further inspection of our San Diego facility, the FDA notified us that this inspection was classified “voluntary action indicated,” meaning that the objectionable conditions or practices found in the inspection did not meet the threshold of significance requiring regulatory action, but that formal close-out of the October 2012 warning letter could not occur until after a future inspection.

In May 2012, we also received a subpoena from the Office of Inspector General of the Department of Health and Human Services, or the OIG, seeking documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the government and are responding to the investigation, which is ongoing. We have been engaged in discussions with the government about this matter, including a resolution of potential related False Claims Act and common law liability exposure for the products under review. As a result of these discussions, management has accrued $10.2 million for this matter in the three months ended June 30, 2016. We would need to obtain certain approvals before we could agree to any proposed resolution. There can be no assurance that future discussions with the government to resolve these matters will be successful, that the approvals we need will be obtained or that any potential settlement will be agreed to or finalized. We may be required to engage in litigation of this matter, which may be time consuming and costly. Based on the ongoing uncertainties and potentially wide range of outcomes associated with any potential resolution, the ultimate amount of potential loss may materially exceed the accrual we have established.

We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with them.

INRatio Class Actions

On May 26, 2016, a class action lawsuit captioned Dina Andren and Sidney Bludman v. Alere Inc., et al., was filed against us in the United States District Court for the Southern District of California. In addition, on July 22, 2016, a class action lawsuit captioned J.E, J.D., and all others similarly situated v. Alere Inc., Alere San Diego, Inc. and Alere Home Monitoring, Inc., was filed against us in the United States District Court for the District of Massachusetts. These class actions purport to assert claims against us under several legal theories, including fraud, breach of warranty, unjust enrichment and violation of applicable unfair competition/business practice statutes in connection with the manufacturing, marketing and sale of our INRatio products. The plaintiffs in the Dina Andren and Sidney Bludman class action seek to represent a proposed class of all persons who purchased, rented or otherwise paid for the INRatio system during the period January 1, 2009 to May 26, 2016 in the United States, or alternatively, California, Maryland and/or New York. The plaintiffs in the J.E, J.D., and all others similarly situated class action seek to represent a proposed class of all persons who purchased, rented or otherwise paid for the INRatio system during the period April 1, 2008 to present. Both class action complaints seek restitution and damages allegedly resulting from inaccurate PT/INR readings and from the purchase of devices that claimants say they would not have purchased had they known of the alleged propensity of these devices to yield inaccurate PT/INR results. Among other things, plaintiffs in these class action lawsuits seek a refund of money spent on INRatio products. Each complaint also seeks unspecified compensatory damages, injunctive relief, attorneys’ fees and costs. The Andren action also appears to seek damages for personal injury.

We are unable, at this time, to predict the outcome of these class action lawsuits.

Claims in the Ordinary Course and Other Matters

We are also party to certain other legal proceedings and other governmental investigations, or are requested to provide information in connection with such proceedings or investigations. For example, in December 2014, we and our subsidiary, Avee Laboratories Inc., or Avee, received subpoenas from the United States Attorney for the District of New Jersey seeking marketing materials and other documents relating primarily to billing and marketing practices related to toxicology testing. In addition, we received a U.S. Department of Justice criminal subpoena addressed to Alere Toxicology Services, Inc. on July 1, 2016 which seeks records related to Medicare, Medicaid and Tricare billings dating back to 2010 for specific patient samples tested at our Austin, Texas pain management laboratory and payments made to physicians. We are cooperating with these investigations and are providing documents in response to both subpoenas. We and our subsidiary, Arriva Medical, LLC, are also in the process of responding to Civil Investigative Demands, or CIDs, the most recent of which was received in July 2016, from the United States Attorney for the Middle District of Tennessee in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The CIDs request patient and insurance billing and medical records, records related to interactions with third parties, and correspondence related to the same, dating back to January 2010. We are cooperating with the investigation and are providing documents responsive to the CIDs. We cannot predict what effect, if any, these investigations, or any resulting claims, could have on Alere or its subsidiaries.

We have received, from time to time, additional subpoenas and requests for information from the United States Department of Justice, other federal government agencies and state attorneys general, and we have, in each of these cases, cooperated with the applicable governmental entity in responding to the applicable subpoena or request for information. For example, in May 2016, we received a subpoena from the U.S. Attorney for the District of New Jersey, which seeks various documents related to the accuracy, reliability and performance of the INRatio System, including documents relating to prior interactions with the FDA and others regarding the system.

Our diabetes, toxicology and patient self-testing businesses are subject to audit and claims for reimbursement brought in the ordinary course by private third-party payers, including health insurers, Zone Program Integrity Contractors, or ZPICs, and Medicare

 

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Administrative Contractors, or MACs, to monitor compliance with coverage and reimbursement rules and guidelines. These types of audits and claims can include, but are not limited to, claims relating to proper documentation and support or claims relating to the medical necessity of certain testing and can lead to assertions or determinations that certain claims should not have been, or will no longer be, paid by the private third-party payer or by Medicare or Medicaid. In such cases, the payer or program may seek to recoup or offset amounts they assert have been paid in error.

Our businesses may also be subject at any time to other commercial disputes, product liability claims, personal injury claims, including claims arising from or relating to product recalls, negligence claims, third-party subpoenas or various other lawsuits arising in the ordinary course of business, including infringement, employment or investor matters, and we expect that this will continue to be the case in the future. For example, several individuals have filed suits against us alleging personal injury claims in connection with the use of our INRatio products (which are in addition to the class action suits described above).

Such lawsuits or claims generally seek damages or reimbursement, sometimes in substantial amounts. There are possible unfavorable outcomes related to litigation or governmental investigations that could adversely impact our business, results of operations, financial condition, and cash flows.

(18) 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 on or before 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. Please also see Note 3, Summary of Significant Accounting Policies, to our consolidated financial statements included within our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Recently Issued Standards

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, or ASU 2016-12. ASU 2016-12: (1) clarifies the objective of the collectability criterion for applying Accounting Standards Codification, or ASC, paragraph 606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date for non-cash consideration is contract inception; (4) provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. ASU 2016-12 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect the adoption of ASU 2016-12 to have a significant impact on our consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. ASU 2016-10 adds further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. ASU 2016-10 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-10 on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We do not expect the adoption of ASU 2016-09 to have a significant impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, or ASU 2016-07. ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. ASU 2016-07 also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and should be applied prospectively with early adoption permitted. We do not expect the adoption of ASU 2016-07 to have a significant impact on our consolidated financial statements.

 

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In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 requires lessees to recognize for all leases (with the exception of short-term leases) at the commencement date, a lease liability which is a lessee‘s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and should be applied with a modified retrospective transition approach, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

We believe that there were no other accounting standards recently issued that had or are expected to have a material impact on our consolidated financial statements.

Recently Adopted Standards

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, or ASU 2015-16. ASU 2015-16 requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. Effective January 1, 2016, we adopted ASU 2015-16. The adoption did not have a significant impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 is intended to simplify the presentation of debt issuance costs. It requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted. In August 2015, the FASB issued ASU No. 2015-15, Interest —Imputation of Interest (Subtopic 835-30) — Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting), or ASU 2015-15. ASU 2015-15 adds the authoritative guidance on presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements to ASU 2015-03. Effective December 31, 2015, we adopted ASU 2015-03 and ASU 2015-15, and accordingly we have reclassified $49.6 million and $34.1 million of debt issuance costs from other non-current assets to long-term debt, net of current portion on our balance sheet as of June 30, 2016 and December 31, 2015, respectively.

In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718) — Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, or ASU 2014-12. ASU 2014-12 requires that a performance target which affects vesting and which could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted. Effective March 31, 2016, we adopted ASU 2014-12. The adoption did not have a significant impact on our consolidated financial statements.

(19) 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

We recorded earnings of $1.6 million and $6.2 million during the three and six months ended June 30, 2016, respectively, and earnings of $0.6 million and $4.2 million during the three and six months ended June 30, 2015, respectively, in equity earnings of unconsolidated entities, net of tax, in our consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods and elimination of intercompany profit in inventory related to sales from Alere to SPD which is reflected in SPD’s net income. During the three and six months ended June 30, 2015, we received $12.1 million in cash from SPD as a return of capital.

 

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(b) TechLab

We recorded earnings of $0.6 million and $1.0 million during the three and six months ended June 30, 2016, respectively, and earnings of $0.4 million and $0.8 million during the three and six months ended June 30, 2015, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective periods. During the three and six months ended June 30, 2015, we received $2.2 million in cash from TechLab as a return of capital.

As of June 30, 2016, we continued to meet the held for sale criteria with respect to our 49% investment in TechLab. We intend to use all or a portion of the proceeds from any sale of this investment to fund our working capital, operations, research and development or repay a portion of our outstanding indebtedness. Accordingly, we have classified our investment in TechLab in assets held for sale – non-current in our consolidated balance sheet as of June 30, 2016.

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  

Combined Condensed Results of Operations:

   2016      2015      2016      2015  

Net revenue

   $ 55,077       $ 53,159       $ 108,511       $ 101,016   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

   $ 36,634       $ 34,559       $ 72,853       $ 67,830   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income after taxes

   $ 4,328       $ 3,039       $ 14,469       $ 11,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Combined Condensed Balance Sheet:

   June 30, 2016      December 31, 2015  

Current assets

   $ 91,942       $ 71,542   

Non-current assets

     31,826         30,802   
  

 

 

    

 

 

 

Total assets

   $ 123,768       $ 102,344   
  

 

 

    

 

 

 

Current liabilities

   $ 47,764       $ 37,609   

Non-current liabilities

     5,845         5,157   
  

 

 

    

 

 

 

Total liabilities

   $ 53,609       $ 42,766   
  

 

 

    

 

 

 

(20) Impairment and (Gain) Loss on Dispositions, Net

In January 2016, we completed the sale of our Alere E-Santé business, which was a component of our professional diagnostics reporting unit and business segment. We received cash consideration of approximately $8.1 million, net of a final working capital adjustment totaling approximately $0.2 million, and we are eligible to receive up to $1.5 million of contingent cash consideration. As a result of this transaction, we recorded a $3.8 million gain in the three months ended March 31, 2016 on the disposition of the Alere E-Santé business.

In May 2015, we sold our Alere Analytics business, which was part of our professional diagnostics reporting unit and business segment. Under the terms of the sale we received nominal consideration and agreed to contribute working capital of $2.7 million to Alere Analytics, of which $2.4 million was contributed in cash immediately prior to the closing of the sale and the remaining $0.3 million of which was deposited in escrow pending the performance by the buyers under certain contracts. As a result of this transaction we recorded a loss of $4.7 million during the second quarter of 2015. During the three months ended March 31, 2015, before identifying a buyer for Alere Analytics, our management decided to close the business, and in connection with this decision we recorded an impairment charge of $26.7 million during the period, including the write-off of $26.2 million of acquisition-related intangible assets and $0.5 million of fixed assets.

In March 2015, we sold certain assets of our AdnaGen GmbH business, which was part of our professional diagnostics reporting unit and business segment, for approximately $4.6 million in cash proceeds and, as a result of this transaction, we recorded a loss of $0.3 million during the three months ended March 31, 2015.

In March 2015, we sold our Gesellschaft fur Patientenhilfe DGP GmbH subsidiary, which was part of our professional diagnostics reporting unit and business segment, for €7.6 million (approximately $8.2 million at March 31, 2015) and, as a result of this transaction, we recorded a loss on disposition of $7.5 million during the three months ended March 31, 2015.

In December 2014, our management decided to close our Alere Connect, LLC subsidiary, which is part of our professional diagnostics reporting unit and business segment. During the six months ended June 30, 2015, in connection with this decision, we recorded impairment charges of $1.0 million, consisting primarily of severance costs, inventory write-offs and other closure-related expenses.

The financial results for the above businesses are immaterial to our consolidated financial results.

 

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(21) Income Taxes

We determine our estimated annual effective tax rate at the end of each interim period based on forecasted full-year pre-tax income (loss) by jurisdiction and permanent items. Our effective tax rate by quarter may vary based on actual quarter to date income and the forecasted mix of jurisdictional income (loss), as well as discrete items.

A reconciliation between the U.S. federal statutory rate and our effective tax rate is summarized as follows:

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2016     2015     2016     2015  

Statutory rate

     35     35     35     35

State income taxes, net of federal benefit

     (5)     (4)     (4)     (5)

Rate differential on foreign earnings

     (61)     (19)     (58)     (27)

Change in valuation allowance

     (4)     (3)     (6)     10

Stock-based compensation

     11     5     11     (9)

Uncertain tax positions

     12     7     9     15

Disposition of BBI

     0     27     0     65

Other

     3     6     7     (12)
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     (9 )%      54     (6 )%      72
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three months and six months ended June 30, 2016, compared to the same periods in 2015, our effective tax rate decrease is primarily attributed to a more favorable jurisdictional mix of income and losses in the current year and non-recurring discrete tax impacts in 2015.

(22) Guarantor Financial Information

Our 7.25% senior notes due 2018, our 6.5% senior subordinated notes due 2020 and our 6.375% senior subordinated notes due 2023 are guaranteed, and before their redemption on October 1, 2015, our 8.625% senior subordinated notes due 2018 were guaranteed, by certain of our consolidated 100% owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, balance sheets as of June 30, 2016 and December 31, 2015, the related statements of operations and statements of comprehensive income (loss) for the three and six months ended June 30, 2016 and 2015, and statements of cash flows for the six months ended June 30, 2016 and 2015, respectively, for Alere Inc., the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of Alere Inc. and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

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

Effective December 31, 2015, we adopted ASU 2015-03 and ASU 2015-15, and accordingly we have reclassified $49.6 million and $34.1 million of debt issuance costs from other non-current assets to long-term debt, net of current portion on our balance sheet as of June 30, 2016 and December 31, 2015, respectively, as described in Note 18 Recent Accounting Pronouncements.

As discussed in Note 2 Revision to Previously Reported Financial Statements, in connection with the preparation of our consolidated financial statements for 2015, we determined that, in 2013 and 2014, each of the interim periods in 2014, and the first three quarters of 2015, we had incorrectly recorded the revenue for such periods. In addition, we corrected several out-of-period adjustments. As a result, we revised our consolidated financial information for the years ended December 31, 2014 and 2013, each of the interim periods in 2014 and the first three quarters of 2015. The revisions to the consolidating statements of cash flows in this Note 22 did not impact previously reported net cash flows from operating activities, investing activities, or financing activities and as a result, there was no net impact to net change in cash and cash equivalents for the previously reported periods reflected in this Note 22.

 

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The following schedules reconcile the amounts as previously reported in our consolidating financial statements to the corresponding revised amounts:

 

     Three Months Ended June 30, 2015  

Revised Consolidating Statement of Operations- Guarantor Subsidiaries

(in thousands)

   As Previously
Reported
     Revision
Adjustment
     As
Revised
 

Net revenue

   $ 330,820       $ (1,011    $ 329,809   

Cost of net revenue

   $ 199,233       $ 14       $ 199,247   

Income from continuing operations before benefit for income taxes

   $ 55,133       $ (2,090    $ 53,043   

Provision for income taxes

   $ 11,277       $ (447    $ 10,830   

Income from continuing operations

   $ 43,856       $ (1,643    $ 42,213   
     Three Months Ended June 30, 2015  

Revised Consolidating Statement of Operations- Non-Guarantor Subsidiaries

(in thousands)

   As Previously
Reported
     Revision
Adjustment
     As
Revised
 

Net revenue

   $ 367,418       $ (4,774    $ 362,644   

Cost of net revenue

   $ 205,840       $ (559    $ 205,281   

Income from continuing operations before benefit for income taxes

   $ 111,130       $ (5,415    $ 105,715   

Provision for income taxes

   $ 22,768       $ (1,565    $ 21,203   

Income from continuing operations

   $ 88,786       $ (3,850    $ 84,936   
     Six Months Ended June 30, 2015  

Revised Consolidating Statement of Operations- Guarantor Subsidiaries

(in thousands)

   As Previously
Reported
     Revision
Adjustment
     As
Revised
 

Net revenue

   $ 659,282       $ (3,181    $ 656,101   

Cost of net revenue

   $ 387,269       $ (882    $ 386,387   

Income from continuing operations before benefit for income taxes

   $ 60,049       $ (4,461    $ 55,588   

Provision for income taxes

   $ 13,097       $ (1,516    $ 11,581   

Income from continuing operations

   $ 46,952       $ (2,945    $ 44,007   
     Six Months Ended June 30, 2015  

Revised Consolidating Statement of Operations- Non-Guarantor Subsidiaries

(in thousands)

   As Previously
Reported
     Revision
Adjustment
     As
Revised
 

Net revenue

   $ 710,777       $ 2,135       $ 712,912   

Cost of net revenue

   $ 398,325       $ 1,846       $ 400,171   

Income from continuing operations before benefit for income taxes

   $ 188,294       $ (911    $ 187,383   

Provision for income taxes

   $ 32,483       $ 437       $ 32,920   

Income from continuing operations

   $ 159,803       $ (1,348    $ 158,455   

 

28


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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2016

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 222,954      $ 335,540      $ (74,748   $ 483,746   

Services revenue

     —          112,698        12,111        —          124,809   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          335,652        347,651        (74,748     608,555   

License and royalty revenue

     —          3,448        2,008        (2,923     2,533   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          339,100        349,659        (77,671     611,088   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     220        126,795        188,478        (65,095     250,398   

Cost of services revenue

     104        79,203        7,760        (8,773     78,294   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     324        205,998        196,238        (73,868     328,692   

Cost of license and royalty revenue

     —          (7     3,466        (2,924     535   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     324        205,991        199,704        (76,792     329,227   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (324     133,109        149,955        (879     281,861   

Operating expenses:

          

Research and development

     2,997        16,194        9,255        —          28,446   

Sales and marketing

     1,568        53,155        47,793        —          102,516   

General and administrative

     57,740        30,460        40,154        —          128,354   

Impairment and (gain) loss on dispositions, net

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (62,629     33,300        52,753        (879     22,545   

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

     (41,857     (2,223     (2,775     4,526        (42,329

Other income (expense), net

     (8,144     4,103        (5,544     (4,527     (14,112
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (112,630     35,180        44,434        (880     (33,896

Provision (benefit) for income taxes

     19,765        (6,759     (9,889     —          3,117   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (132,395     41,939        54,323        (880     (37,013

Equity in earnings of subsidiaries, net of tax

     96,916        —          —          (96,916     —     

Equity earnings of unconsolidated entities, net of tax

     588        —          1,557        (23     2,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (34,891     41,939        55,880        (97,819     (34,891

Less: Net income attributable to non-controlling interests

     —          —          143        —          143   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (34,891     41,939        55,737        (97,819     (35,034

Preferred stock dividends

     (5,308     —          —          —          (5,308
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders 

   $ (40,199   $ 41,939      $ 55,737      $ (97,819   $ (40,342
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2015

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 211,593      $ 345,289      $ (65,833   $ 491,049   

Services revenue

     —          114,983        11,645        —          126,628   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          326,576        356,934        (65,833     617,677   

License and royalty revenue

     —          3,233        5,710        (3,249     5,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          329,809        362,644        (69,082     623,371   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     417        120,953        193,593        (57,070     257,893   

Cost of services revenue

     80        77,884        7,524        (8,688     76,800   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     497        198,837        201,117        (65,758     334,693   

Cost of license and royalty revenue

     19        410        4,164        (3,249     1,344   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     516        199,247        205,281        (69,007     336,037   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (516     130,562        157,363        (75     287,334   

Operating expenses:

          

Research and development

     3,241        13,993        9,964        —          27,198   

Sales and marketing

     1,570        52,101        54,353        —          108,024   

General and administrative

     24,390        51,288        (14,505     —          61,173   

Impairment and (gain) loss on dispositions, net

     44,378        (39,412     576        —          5,542   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (74,095     52,592        106,975        (75     85,397   

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

     (59,086     (3,060     (4,702     7,354        (59,494

Other income (expense), net

     3,596        3,511        3,442        (7,354     3,195   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (129,585     53,043        105,715        (75     29,098   

Provision (benefit) for income taxes

     (16,306     10,830        21,203        (38     15,689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (113,279     42,213        84,512        (37     13,409   

Equity in earnings of subsidiaries, net of tax

     127,127        —          —          (127,127     —     

Equity earnings of unconsolidated entities, net of tax

     922        —          424        15        1,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     14,770        42,213        84,936        (127,149     14,770   

Less: Net income attributable to non-controlling interests

     —          —          359        —          359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     14,770        42,213        84,577        (127,149     14,411   

Preferred stock dividends

     (5,308     —          —          —          (5,308
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 9,462      $ 42,213      $ 84,577      $ (127,149   $ 9,103   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2016

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 447,334      $ 632,377      $ (136,194   $ 943,517   

Services revenue

     —          217,182        23,336        —          240,518   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          664,516        655,713        (136,194     1,184,035   

License and royalty revenue

     —          6,368        4,566        (5,672     5,262   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          670,884        660,279        (141,866     1,189,297   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     334        251,553        354,460        (118,488     487,859   

Cost of services revenue

     104        151,698        15,800        (16,208     151,394   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     438        403,251        370,260        (134,696     639,253   

Cost of license and royalty revenue

     —          10        7,589        (5,673     1,926   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     438        403,261        377,849        (140,369     641,179   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (438     267,623        282,430        (1,497     548,118   

Operating expenses:

          

Research and development

     7,131        30,653        17,724        —          55,508   

Sales and marketing

     2,904        107,620        91,805        —          202,329   

General and administrative

     102,355        63,646        77,309        —          243,310   

Impairment and (gain) loss on dispositions, net

     —          —          (3,810     —          (3,810
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (112,828     65,704        99,402        (1,497     50,781   

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

     (82,944     (4,875     (5,842     9,226        (84,435

Other income (expense), net

     (6,156     6,605        (6,683     (9,227     (15,461
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (201,928     67,434        86,877        (1,498     (49,115

Provision (benefit) for income taxes

     19,711        (6,509     (10,293     —          2,909   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (221,639     73,943        97,170        (1,498     (52,024

Equity in earnings of subsidiaries, net of tax

     175,502        —          —          (175,502     —     

Equity earnings of unconsolidated entities, net of tax

     1,269        —          6,138        (251     7,156   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (44,868     73,943        103,308        (177,251     (44,868

Less: Net income attributable to non-controlling interests

     —          —          246        —          246   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (44,868     73,943        103,062        (177,251     (45,114

Preferred stock dividends

     (10,617     —          —          —          (10,617
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (55,485   $ 73,943      $ 103,062      $ (177,251   $ (55,731
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2015

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 426,631      $ 675,395      $ (126,639   $ 975,387   

Services revenue

     —          223,040        27,444        —          250,484   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          649,671        702,839        (126,639     1,225,871   

License and royalty revenue

     —          6,430        10,073        (6,111     10,392   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          656,101        712,912        (132,750     1,236,263   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     833        233,248        375,999        (112,086     497,994   

Cost of services revenue

     130        151,921        15,964        (15,589     152,426   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     963        385,169        391,963        (127,675     650,420   

Cost of license and royalty revenue

     (21     1,218        8,208        (6,111     3,294   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     942        386,387        400,171        (133,786     653,714   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (942     269,714        312,741        1,036        582,549   

Operating expenses:

          

Research and development

     5,543        28,912        20,759        —          55,214   

Sales and marketing

     2,830        105,328        108,945        —          217,103   

General and administrative

     44,913        89,058        19,893        —          153,864   

Impairment and (gain) loss on dispositions, net

     80,901        (8,804     (31,763     —          40,334   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (135,129     55,220        194,907        1,036        116,034   

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

     (105,184     (6,345     (8,745     14,349        (105,925

Other income (expense), net

     7,243        6,713        1,221        (14,349     828   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (233,070     55,588        187,383        1,036        10,937   

Provision (benefit) for income taxes

     (36,973     11,581        32,920        308        7,836   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (196,097     44,007        154,463        728        3,101   

Equity in earnings of subsidiaries, net of tax

     201,260        —          —          (201,260     —     

Equity earnings of unconsolidated entities, net of tax

     1,346        —          3,992        (18     5,320   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     6,509        44,007        158,455        (200,550     8,421   

Income (loss) from discontinued operations, net of tax

     218,689        (1,912     —          —          216,777   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     225,198        42,095        158,455        (200,550     225,198   

Less: Net income attributable to non-controlling interests

     —          —          447        —          447   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     225,198        42,095        158,008        (200,550     224,751   

Preferred stock dividends

     (10,558     —          —          —          (10,558
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 214,640      $ 42,095      $ 158,008      $ (200,550   $ 214,193   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2016

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (34,891   $ 41,939      $ 55,880      $ (97,819   $ (34,891
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

          

Changes in cumulative translation adjustment

     276        (699     (43,720     8        (44,135

Minimum pension liability adjustment

     —          —          531        —          531   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     276        (699     (43,189     8        (43,604
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     276        (699     (43,189     8        (43,604
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (34,615     41,240        12,691        (97,811     (78,495

Less: Comprehensive income attributable to non-controlling interests

     —          —          143        —          143   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (34,615   $ 41,240      $ 12,548      $ (97,811   $ (78,638
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2015

(in thousands)

 

     Issuer      Guarantor
Subsidiaries
     Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income

   $ 14,770       $ 42,213       $ 84,936      $ (127,149   $ 14,770   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

            

Changes in cumulative translation adjustment

     197         689         45,840        —          46,726   

Minimum pension liability adjustment

     —           —           (374     —          (374
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     197         689         45,466        —          46,352   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income

     197         689         45,466        —          46,352   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

     14,967         42,902         130,402        (127,149     61,122   

Less: Comprehensive income attributable to non-controlling interests

     —           —           359        —          359   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 14,967       $ 42,902       $ 130,043      $ (127,149   $ 60,763   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2016

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (44,868   $ 73,943      $ 103,308      $ (177,251   $ (44,868
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

          

Changes in cumulative translation adjustment

     391        (828     (21,513     8        (21,942

Minimum pension liability adjustment

     —          —          686        —          686   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     391        (828     (20,827     8        (21,256
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     391        (828     (20,827     8        (21,256
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (44,477     73,115        82,481        (177,243     (66,124

Less: Comprehensive income attributable to non-controlling interests

     —          —          246        —          246   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (44,477   $ 73,115      $ 82,235      $ (177,243   $ (66,370
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2015

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income

   $ 225,198      $ 42,095       $ 158,455      $ (200,550   $ 225,198   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

           

Changes in cumulative translation adjustment

     (460     117         (33,273     —          (33,616

Minimum pension liability adjustment

     —          —           (1,756     —          (1,756
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     (460     117         (35,029     —          (35,372
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (460     117         (35,029     —          (35,372
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

     224,738        42,212         123,426        (200,550     189,826   

Less: Comprehensive income attributable to non-controlling interests

     —          —           447        —          447   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 224,738      $ 42,212       $ 122,979      $ (200,550   $ 189,379   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

36


Table of Contents

CONSOLIDATING BALANCE SHEET

June 30, 2016

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 49,465      $ 6,881       $ 449,818      $ —        $ 506,164   

Restricted cash

     1,415        —           4,247        —          5,662   

Marketable securities

     —          74         —          —          74   

Accounts receivable, net of allowances

     —          190,438         236,784        —          427,222   

Inventories, net

     —          168,413         188,448        (23,015     333,846   

Deferred tax assets

     (455     6,513         (6,058     —          —     

Prepaid expenses and other current assets

     12,194        33,489         110,122        6,534        162,339   

Intercompany receivables

     360,548        827,927         158,858        (1,347,333     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     423,167        1,233,735         1,142,219        (1,363,814     1,435,307   

Property, plant and equipment, net

     29,742        224,796         187,337        (3,088     438,787   

Goodwill

     —          1,823,018         988,527        —          2,811,545   

Other intangible assets with indefinite lives

     —          7,538         20,800        (59     28,279   

Finite-lived intangible assets, net

     2,745        566,973         342,690        (3,200     909,208   

Restricted cash

     —          —           42,589        —          42,589   

Other non-current assets

     570        2,052         14,317        (649     16,290   

Investments in subsidiaries

     3,455,642        158,195         57,650        (3,671,487     —     

Investments in unconsolidated entities

     687        14,765         44,654        14,405        74,511   

Deferred tax assets

     (66,034     24,785         62,006        (2,119     18,638   

Non-current income tax receivable

     3,517        —           —          —          3,517   

Assets held for sale — non-current

     12,223        —           —          —          12,223   

Intercompany notes receivables

     1,887,589        708,708         2,901        (2,599,198     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,749,848      $ 4,764,565       $ 2,905,690      $ (7,629,209   $ 5,790,894   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Current liabilities:

           

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

   $ 40,073      $ —         $ 3,608      $ —        $ 43,681   

Current portion of capital lease obligations

     —          1,654         1,846        —          3,500   

Accounts payable

     23,789        77,283         93,163        —          194,235   

Accrued expenses and other current liabilities

     (514,898     635,590         197,663        2,171        320,526   

Intercompany payables

     965,315        178,406         203,621        (1,347,342     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     514,279        892,933         499,901        (1,345,171     561,942   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     2,874,825        —           45,964        —          2,920,789   

Capital lease obligations, net of current portion

     —          1,466         5,506        —          6,972   

Deferred tax liabilities

     (158,407     250,292         48,897        82        140,864   

Other long-term liabilities

     14,741        56,618         77,455        (649     148,165   

Intercompany notes payables

     496,756        1,162,748         939,694        (2,599,198     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total long-term liabilities

     3,227,915        1,471,124         1,117,516        (2,599,765     3,216,790   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     2,007,654        2,400,508         1,283,765        (3,684,273     2,007,654   

Non-controlling interests

     —          —           4,508        —          4,508   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     2,007,654        2,400,508         1,288,273        (3,684,273     2,012,162   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 5,749,848      $ 4,764,565       $ 2,905,690      $ (7,629,209   $ 5,790,894   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

CONSOLIDATING BALANCE SHEET

December 31, 2015

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 139,153      $ 21,150      $ 341,897       $ —        $ 502,200   

Restricted cash

     1,250        —          4,444         —          5,694   

Marketable securities

     —          164        —           —          164   

Accounts receivable, net of allowances

     —          192,591        253,242         —          445,833   

Inventories, net

     —          173,383        194,192         (20,574     347,001   

Deferred tax assets

     (52,410     31,285        23,244         (2,119     —     

Prepaid expenses and other current assets

     7,575        27,095        110,961         6,602        152,233   

Assets held for sale — current

     —          —          4,165         —          4,165   

Intercompany receivables

     620,838        812,957        50,691         (1,484,486     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     716,406        1,258,625        982,836         (1,500,577     1,457,290   

Property, plant and equipment, net

     31,384        228,065        188,084         (1,494     446,039   

Goodwill

     —          1,823,919        1,012,996         —          2,836,915   

Other intangible assets with indefinite lives

     —          7,638        20,531         (59     28,110   

Finite-lived intangible assets, net

     2,951        627,269        370,261         (3,200     997,281   

Restricted cash

     —          —          43,228         —          43,228   

Other non-current assets

     804        2,340        15,380         (446     18,078   

Investments in subsidiaries

     3,294,857        158,195        57,650         (3,510,702     —     

Investments in unconsolidated entities

     502        14,764        37,947         12,120        65,333   

Deferred tax assets

     (14,078     (14     28,085         —          13,993   

Non-current income tax receivable

     3,517        —          —           —          3,517   

Assets held for sale — non-current

     13,337        —          —           —          13,337   

Intercompany notes receivables

     1,905,188        672,032        6,900         (2,584,120     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,954,868      $ 4,792,833      $ 2,763,898       $ (7,588,478   $ 5,923,121   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Current liabilities:

           

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

   $ 197,084      $ —        $ 2,908       $ —        $ 199,992   

Current portion of capital lease obligations

     —          2,018        1,944         —          3,962   

Accounts payable

     15,981        76,890        102,881         —          195,752   

Accrued expenses and other current liabilities

     (554,350     650,632        225,944         2,239        324,465   

Liabilities related to assets held for sale — current

     —          —          363         —          363   

Intercompany payables

     1,122,042        249,553        112,891         (1,484,486     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     780,757        979,093        446,931         (1,482,247     724,534   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     2,784,913        —          46,253         —          2,831,166   

Capital lease obligations, net of current portion

     —          840        6,341         —          7,181   

Deferred tax liabilities

     (157,708     250,495        54,749         82        147,618   

Other long-term liabilities

     14,962        59,309        80,369         (447     154,193   

Intercompany notes payables

     477,779        1,181,168        925,173         (2,584,120     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,119,946        1,491,812        1,112,885         (2,584,485     3,140,158   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     2,054,165        2,321,928        1,199,818         (3,521,746     2,054,165   

Non-controlling interests

     —          —          4,264         —          4,264   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     2,054,165        2,321,928        1,204,082         (3,521,746     2,058,429   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 5,954,868      $ 4,792,833      $ 2,763,898       $ (7,588,478   $ 5,923,121