10-K/A 1 d78896d10ka.htm FORM 10-K/A Form 10-K/A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 3)

 

 

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

Commission file number 000-16789

 

 

 

 

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)

 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 per share par value

Series B Convertible Perpetual Preferred

Stock, $0.001 per share par value

 

New York Stock Exchange

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 aggregate market value of the common stock held by non-affiliates of the registrant based on the closing price of the registrant’s common stock on the New York Stock Exchange on June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $2,918,891,906.

As of November 11, 2015, the registrant had 86,256,820 shares of common stock, par value $0.001 per share, outstanding.

 

 

 


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Explanatory Note

In the Quarterly Report on Form 10-Q of Alere Inc. (the “Company”) filed with the Securities and Exchange Commission (the “SEC”) on November 9, 2015, the Company disclosed that, during the quarter ended September 30, 2015, management identified and corrected out-of-period errors in that quarter relating to U.S. taxes on foreign earnings for the year ended December 31, 2014. The Company disclosed that management had concluded that these errors were the result of a material weakness in that the Company did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes. Accordingly, the Company stated that it was revising its previous description of the material weakness that existed as of December 31, 2014.

This Amendment No. 3 (“Amendment No. 3”) on Form 10-K/A to the Annual Report on Form 10-K of the Company for the year ended December 31, 2014, as originally filed with the SEC on March 5, 2015 (the “Original Report”) and as amended on April 30, 2015 (“Amendment No. 1”) and May 28, 2015 (“Amendment No. 2”), is being filed to restate Item 9A, “Controls and Procedures,” and the “Report of Independent Registered Public Accounting Firm” (which is included in Item 8, “Financial Statements and Supplementary Data”) in order to revise the description of the material weakness that existed as of December 31, 2014 and related matters, including the Company’s remediation plans. Other than the restated “Report of Independent Registered Public Accounting Firm” on page F-2, no changes have been made to the Company’s consolidated financial statements or the notes thereto that were included in Amendment No. 2.

In order to preserve the nature and character of the disclosures set forth in the Original Report, as amended by Amendment No. 1 and Amendment No. 2, this Form 10-K/A speaks as of the date of the filing of the Original Report, March 5, 2015, and the disclosures contained in this Form 10-K/A have not been updated to reflect events occurring subsequent to that date, other than those associated with (a) the restatement described in Amendment No. 2 and (b) the revised description of the material weakness that existed as of December 31, 2014.

Currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer are attached to this Form 10-K/A as Exhibits 31.1, 31.2 and 32.1. This Form 10-K/A should be read in conjunction with Amendment No. 1 and Amendment No. 2 to the Original Report and the Company’s other filings with the SEC.

 

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ALERE INC.

FORM 10-K/A

(Amendment No. 3)

For The Fiscal Year Ended December 31, 2014

 

          Page  
PART II   

ITEM 8.

   Financial Statements and Supplementary Data      4   

ITEM 9A.

   Controls and Procedures      6   
PART IV   

ITEM 15.

   Exhibits and Financial Statement Schedules      9   

Signature

     14   

 

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PART II

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data, except for selected quarterly financial data which are summarized below, are listed under Item 15(1) and have been filed as part of this report on the pages indicated.

As described in Note 2 of our accompanying consolidated financial statements, we have restated our financial statements for each of the three months ended September 30 and December 31, 2014 and have revised our financial statements for each of the three-month periods ended in 2013 and each of the three months ended March 31 and June 30, 2014. We have also revised the selected quarterly financial data for the quarters presented below to correct the intra-period tax allocations between continuing operations and discontinued operations.

On October 10, 2014, we completed the sale of ACS, and on January 9, 2015, we completed the sale of our health management business. The results of ACS and the health management business are included in income (loss) from discontinued operations, net of tax, for all periods presented in the selected quarterly financial data below. See Note 3 to our accompanying consolidated financial statements for more information about these divestitures and discontinued operations.

The following table presents selected quarterly financial data for each of the quarters in the years ended December 31, 2014 and 2013 (in thousands, except per share data):

 

     2014  
     First
Quarter(2)
     Second
Quarter(3)
     Third
Quarter(4)
(Restated)
     Fourth
Quarter(5)
(Restated)
 

Net revenue

   $ 625,239       $ 647,398       $ 649,210       $ 666,857   

Gross profit

   $ 310,358       $ 298,693       $ 301,622       $ 308,264   

Loss from continuing operations

   $ (2,850    $ (57,941    $ (84,289    $ (30,948

Income (loss) from discontinued operations, net of tax

   $ (2,596    $ 12,915       $ (14,401    $ 142,400   

Net income (loss) available to common stockholders(1)

   $ (10,804    $ (50,397    $ (103,751    $ 105,919   

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

           

Loss per common share from continuing operations

   $ (0.10    $ (0.77    $ (1.08    $ (0.44

Income (loss) per common share from discontinued operations

   $ (0.03    $ 0.16       $ (0.17    $ 1.71   

Net income (loss) per common share(1)

   $ (0.13    $ (0.61    $ (1.25    $ 1.27   

 

     2013  
     First
Quarter(6)
     Second
Quarter(7)
     Third
Quarter(8)
     Fourth
Quarter(9)
 

Net revenue

   $ 633,989       $ 659,839       $ 650,648       $ 671,888   

Gross profit

   $ 318,938       $ 337,132       $ 320,495       $ 340,490   

Income (loss) from continuing operations

   $ (803    $ (42,126    $ (17,156    $ 4,478   

Income (loss) from discontinued operations, net of tax

   $ 14,333       $ (24,746    $ (1,916    $ (3,797

Net income (loss) available to common stockholders(1)

   $ 8,305       $ (72,448    $ (24,798    $ (5,061

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

           

Net income (loss) per common share from continuing operations

   $ (0.08    $ (0.59    $ (0.28    $ (0.01

Net income (loss) per common share from discontinued operations

   $ 0.18       $ (0.30    $ (0.02    $ (0.05

Net income (loss) per common share(1)

   $ 0.10       $ (0.89    $ (0.30    $ (0.06

 

(1) Net income (loss) available to common stockholders and basic and diluted net income (loss) per common share are computed consistent with the annual per share calculations described in Notes 4(o) and 13 of our consolidated financial statements included elsewhere in this report.

 

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(2) Included in net loss from continuing operations for the first quarter of 2014 is $4.4 million of restructuring charges, $5.7 million of stock-based compensation expense, $0.3 million of acquisition-related costs, $1.4 million of expense recorded for fair value adjustments to acquisition-related contingent consideration, $3.0 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.4 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations.
(3) Included in net loss from continuing operations for the second quarter of 2014 is $15.4 million of restructuring charges, $0.1 million of acquisition-related costs, $16.7 million of expense recorded for fair value adjustments to acquisition-related contingent consideration, $11.6 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, a $0.6 million loss associated with the disposition of a component of our Alere Informatics business, $0.6 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations, offset by the reversal of $1.1 million of stock-based compensation expense.
(4) Included in net loss from continuing operations for the third quarter of 2014 is $79.4 million of valuation allowance establishment against deferred tax assets associated with our U.S. foreign tax credit carryforwards, $17.3 million of restructuring charges, $3.2 million of stock-based compensation expense, $0.3 million of acquisition-related costs, $6.2 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.7 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations, $0.4 million loss on the sale of our equity investment in Vedalab S.A., offset by the reversal of $5.5 million of expense recorded for fair value adjustments to acquisition-related contingent consideration.
(5) Included in net loss from continuing operations for the fourth quarter of 2014 is $60.8 million of amortization, $21.6 million of restructuring charges, $4.7 million of stock-based compensation expense, $0.2 million of acquisition-related costs, $5.8 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.2 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations and $7.1 million in impairment and gain (loss) on dispositions, net, offset by the reversal of $4.8 million of expense recorded for fair value adjustments to acquisition-related contingent consideration.
(6) Included in net income from continuing operations for the first quarter of 2013 is $2.0 million related to restructuring charges associated with the decision to close various facilities, acquisition-related costs in the amount of $0.9 million, $9.3 million of expense recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations, $1.0 million of interest expense recorded in connection with fees paid for certain debt modifications and the termination of our former senior secured credit facility, $4.1 million of non-cash stock-based compensation expense, $0.7 million in compensation charges associated with acquisition-related contingent consideration obligations, a $0.5 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc. and $0.2 million of expense associated with the extinguishment of debt.
(7) Included in net loss from continuing operations for the second quarter of 2013 is $2.1 million related to restructuring charges associated with the decision to close various facilities, acquisition-related costs in the amount of $0.4 million, $5.2 million of expense recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations, $35.6 million of loss in connection with the repurchase of our 9% senior subordinated notes, $8.1 million of bargain purchase gain associated with our acquisition of the Liberty business, $5.1 million of non-cash write-off of an investment, $0.8 million of interest expense recorded in connection with fees paid for certain debt modifications and the termination of our former senior secured credit facility, $4.7 million of non-cash stock-based compensation expense, $0.5 million in compensation charges and $0.2 million of related interest accretion associated with acquisition-related contingent consideration obligations, and a $0.7 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc.
(8)

Included in net loss from continuing operations for the third quarter of 2013 is $6.1 million related to restructuring charges associated with the decision to close various facilities, acquisition-related costs in the amount of $0.5 million, $1.8 million of expense recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations, $5.5 million of costs associated with the conduct of a contested proxy solicitation, $5.9 million of loss on disposition of our Spinreact operations, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications,

 

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  $5.7 million of non-cash stock-based compensation expense, $0.8 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations, and a $0.7 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc.
(9) Included in net loss from continuing operations for the fourth quarter of 2013 is amortization of $70.5 million, $4.2 million of restructuring charges, $6.7 million of stock-based compensation expense, $1.3 million of acquisition-related costs, $6.1 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.8 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations, a $0.6 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc., $0.1 million of costs associated with the proxy contest, offset by an $0.8 million reduction in the loss on disposition of our Spinreact, S.A. subsidiary located in Spain and $1.6 million of income recorded for fair value adjustments to acquisition-related contingent consideration.

 

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Conclusions Regarding the Effectiveness of Our Disclosure Controls and Procedures

In connection with the filing of the Original Report on March 5, 2015, our management evaluated, with the participation of our Chief Executive Officer (CEO) and our then-serving Chief Financial Officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by the Original Report. Based on that evaluation, our CEO and then-serving CFO concluded in the Original Report that, because of the material weakness related to our accounting for deferred taxes related to dispositions described below our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The conclusion reached in the Original Report has not changed as of the filing of this report as our CEO and current CFO have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting (Restated)

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

  (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

  (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

  (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In “Management’s Annual Report on Internal Control over Financial Reporting” included in our Original Report, our management, including our CEO and then-serving CFO, concluded that we did not maintain effective internal control over financial reporting as of December 31, 2014 because of a material weakness related to ineffective controls in assessing the accounting for deferred taxes which become recognizable as a result of dispositions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a

 

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timely basis. The material weakness identified by management in the Original Report resulted in adjustments to our deferred tax assets and income from discontinued operations, which were reflected in our consolidated financial statements for the year ended December 31, 2014 included in the Original Report. Subsequent to the filing of the Original Report, the material weakness also resulted in the restatement of the consolidated financial statements for the three and nine months ended September 30, 2014 and the year ended December 31, 2014.

In connection with the preparation of our Quarterly Report on Form 10-Q for the three months ended September 30, 2015, management identified and corrected out-of-period errors in that quarter relating to U.S. taxes on foreign earnings for the year ended December 31, 2014 and concluded that these errors were the result of a material weakness in that we did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes. As a result, we are restating our Annual Report on Internal Control over Financial Reporting to revise the description of the material weakness as follows: we did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes, as a result of which our controls did not operate at a level of precision to identify errors in the calculation of tax balances resulting from dispositions and U.S. taxes on foreign earnings. This revision of the description of the material weakness did not alter management’s previous conclusion that we did not maintain effective internal control over financial reporting as of December 31, 2014.

Additionally, as initially reported in Amendment No. 2, management concluded that this material weakness could result in misstatements of our income tax accounts and related disclosures that could result in a material misstatement of the consolidated financial statements that would not be prevented or detected. This conclusion has not changed as of the date of the filing of this report.

The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our fourth fiscal quarter of 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Plan for Remediation of Material Weakness in Internal Control over Financial Reporting

With the oversight of senior management and the audit committee, we have been taking steps to remediate the material weakness described above and plan to take additional actions to remediate the underlying cause of this material weakness, primarily through:

 

  (1) supplementing our accounting and tax professionals with additional personnel with expertise in accounting for the income tax effects of dispositions and other complex transactions. Since May 1, 2015, we have hired a Vice President, Global Tax, a Senior Director, International Tax, a Director, Global Tax Accounting and Senior Manager, Global Tax Accounting, all of whom have experience working on tax provisions of multinational companies;

 

  (2) enhancing our income tax controls to include specific activities to assess the accounting for deductible outside basis differences that could reverse as a result of transactions to dispose of components of the company;

 

  (3) enhancing our controls over the income tax provision process to include specific controls over the determination of U.S. taxes on foreign earnings; and

 

  (4) holding training for our accounting and tax professionals, specifically related to accounting for income taxes relating to transactions to dispose of components of the company.

These actions are subject to ongoing review by our senior management, as well as oversight by the audit committee of our board of directors. Although we plan to complete this remediation process as quickly as possible, we cannot, at this time, estimate when such remediation may occur, and our initiatives may not prove successful in remediating this material weakness. Management may determine to enhance other existing controls and/or implement additional controls as the implementation progresses. It will take time to determine whether the additional controls we are implementing will be sufficient to accomplish their intended purpose; accordingly, the material weakness may continue for a period of time.

The remedial measures we are taking may not be adequate to prevent additional misstatements or avoid other control deficiencies or material weaknesses. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including judgments used in decision making, the nature and complexity of the transactions we

 

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undertake, assumptions about the likelihood of future events, the soundness of our systems, the adequacy of training and experience, the possibility of human error, cost limitations and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management. As a result, our financial statements may contain one or more material misstatements and may not be available on a timely basis, any of which could cause investors to lose confidence in us and lead to, among other things, unanticipated legal, accounting and other expenses, delays in filing required financial disclosures, enforcement actions by government authorities, fines, penalties, the delisting of our securities, a decline in the prices of our securities, liabilities arising from stockholder litigation and defaults under our secured credit facility and notes indentures.

 

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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

  1. Financial Statements.

The financial statements listed below have been filed as part of this report on the pages indicated:

 

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012

     F-4  

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2014, 2013 and 2012

     F-5  

Consolidated Balance Sheets as of December 31, 2014 and 2013

     F-6  

Consolidated Statements of Equity for the Years Ended December 31, 2014, 2013 and 2012

     F-7  

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012

     F-10   

Notes to Consolidated Financial Statements

     F-11   

 

  2. Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are inapplicable or the required information is shown in the Consolidated Financial Statements or the notes thereto included herein.

 

  3. Exhibits.

Some of the agreements filed as exhibits to this report contain representations and warranties that were made solely for the benefit of the parties to the agreement. These representations and warranties:

 

    may have been qualified by disclosures that were made to the other party or parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

 

    may apply standards of materiality that differ from those of investors;

 

    may have constituted an allocation of risk and responsibility among the parties rather than statements of fact; and

 

    were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

Exhibit

No.

  

Description

***2.1

   Membership Interest Purchase Agreement dated October 27, 2014, by and among Alere Inc., Alere Health, LLC and OptumHealth Care Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, event date October 27, 2014, filed October 28, 2014)

      3.1

   Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)

      3.2

   Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, event date August 21, 2014, filed with the SEC on August 26, 2014)

      4.1

   Indenture, dated May 14, 2007, between the Company and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date May 9, 2007, filed on May 15, 2007)

      4.2

   Indenture dated as of May 12, 2009 between Inverness Medical Innovations, Inc., as issuer, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date May 12, 2009, filed on May 12, 2009)

      4.3

   Ninth Supplemental Indenture dated September 21, 2010 to Indenture date as of May 12, 2009 among Alere Inc., as issuer, the subsidiary guarantors named therein, as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date September 15, 2010, filed with the SEC on September 21, 2010)

 

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Exhibit

No.

  

Description

      4.4

   Eleventh Supplemental Indenture to Indenture dated as of May 12, 2009 (relating to the Record Date Amendments and Waivers) dated as of June 16, 2011, among the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, event date June 16, 2011, filed on June 22, 2011)

      4.5

   Thirteenth Supplemental Indenture to Indenture dated as of May 12, 2009 (relating to the Restricted Payments Amendments and Waivers) dated as of June 16, 2011, among the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, event date June 16, 2011, filed on June 22, 2011)

      4.6

   Fifteenth Supplemental Indenture to Indenture dated as of May 12, 2009 (to add the guarantees of Alere Informatics, Inc., Alere Wellogic, LLC, ATS Laboratories, Inc., Avee Laboratories Inc., eScreen, Inc., Global Analytical Development LLC, Ionian Technologies Inc., Pembrooke Occupational Health, Inc., Screen Tox, Inc., and Standing Stone, Inc.) dated as of April 3, 2013 among Alere Informatics, Inc., Alere Wellogic, LLC, ATS Laboratories, Inc., Avee Laboratories Inc., eScreen, Inc., Global Analytical Development LLC, Ionian Technologies Inc., Pembrooke Occupational Health, Inc., Screen Tox, Inc., and Standing Stone, Inc., as guarantors, the Company as issuer, the other guarantor subsidiaries named therein, as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013)

      4.7

   Seventeenth Supplemental Indenture to Indenture dated as of May 12, 2009 (relating to the BBI Transaction) dated as of June 5, 2014, among the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, event date May 30, 2014, filed on June 5, 2014)

    *4.8

   Nineteenth Supplemental Indenture to Indenture dated as of May 12, 2009 (to add the guarantees of NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc.) dated October 30, 2014 among NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc., as guarantors, the Company as issuer, the other guarantor subsidiaries named therein, as guarantors, and U.S. Bank National Association, as trustee

      4.9

   Sixteenth Supplemental Indenture dated as of May 24, 2013 to Indenture dated as of May 12, 2009, by and among the Company, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date May 23, 2013, filed May 30, 2013)

      4.10

   Eighteenth Supplemental Indenture to Indenture dated as of May 12, 2009 (relating to the BBI Transaction) dated as of June 5, 2014, among the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, event date May 30, 2014, filed on June 5, 2014)

    *4.11

   Twentieth Supplemental Indenture to Indenture dated as of May 12, 2009 (to add the guarantees of NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc.) dated October 30, 2014 among NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc., as guarantors, the Company as issuer, the other guarantor subsidiaries named therein, as guarantors, and U.S. Bank National Association, as trustee

      4.12

   Indenture dated as of August 11, 2009 between Inverness Medical Innovations, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date August 11, 2009, filed on August 11, 2009)

      4.13

   Fifteenth Supplemental Indenture dated as of December 11, 2012 to Indenture dates as of August 11, 2009, by and among the Company, the subsidiary guarantors named therein and Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, event date December 11, 2012, filed on December 14, 2012)

 

10


Table of Contents

Exhibit

No.

  

Description

      4.14

   Sixteenth Supplemental Indenture, dated April 3, 2013 (to add the guarantees of Alere Informatics, Inc., Alere Wellogic, LLC, ATS Laboratories, Inc., Avee Laboratories Inc., eScreen, Inc., Global Analytical Development LLC, Ionian Technologies Inc., Pembrooke Occupational Health, Inc., Screen Tox, Inc., and Standing Stone, Inc.) to Indenture dated as of August 11, 2009 among Alere Informatics, Inc., Alere Wellogic, LLC, ATS Laboratories, Inc., Avee Laboratories Inc., eScreen, Inc., Global Analytical Development LLC, Ionian Technologies Inc., Pembrooke Occupational Health, Inc., Screen Tox, Inc., and Standing Stone, Inc., as guarantors, the Company as issuer, the other guarantor subsidiaries named therein, as guarantors, and Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-4 (File No. 333-187776))

      4.15

   Seventeenth Supplemental Indenture to Indenture dated as of August 11, 2009 (relating to the BBI Transaction) dated as of June 5, 2014, among the Company, the subsidiary guarantors party thereto and Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, event date May 30, 2014, filed on June 5, 2014)

    *4.16

   Eighteenth Supplemental Indenture to Indenture dated as of August 11, 2009 (to add the guarantees of NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc.) dated October 30, 2014 among NewCo SS, LLC, Newco AA, Inc., Newco RD, LLC, Newco RD2, LLC, and Alere Holdco, Inc., as guarantors, the Company as issuer, the other guarantor subsidiaries named therein, as guarantors, and Bank of New York Mellon Trust Company, N.A., as trustee

      4.17

   Registration Rights Agreement, dated as of December 11, 2012, by and among the Company, the guarantors named therein, and Jefferies & Company, Inc., Goldman, Sachs & Co., and Credit Suisse Securities (USA) LLC, as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, event date December 11, 2012, filed on December 14, 2012)

      4.18

   Registration Rights Agreement, dated as of May 24, 2013, by and among the Company, the guarantors named therein, and Goldman, Sachs & Co., Jefferies LLC and Credit Suisse Securities (USA) LLC, as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, event date May 23, 2013, filed May 30, 2013)

  +10.1

   BNP Assay Development, Manufacture and Supply Agreement between Biosite Incorporated and Beckman Coulter, Inc. effective June 24, 2003 (incorporated by reference to Exhibit 10.22 to Annual Report of Biosite Incorporated on Form 10-K, filed on March 12, 2007)

  +10.2

   Shareholder Agreement dated as of May 17, 2007 among Inverness Medical Switzerland GmbH, Procter & Gamble International Operations, SA and SPD Swiss Precision Diagnostics GmbH (incorporated by reference to Exhibit 10.12 to Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007)

  ‡10.3

   Inverness Medical Innovations, Inc. 2001 Stock Option and Incentive Plan, as amended (incorporated by reference to Appendix A to the Company’s Proxy Statement filed on Schedule 14A as filed with the SEC on April 30, 2009)

  ‡10.4

   Alere Inc. 2010 Stock Option and Incentive Plan, as amended (incorporated by reference to Appendix A to the Company’s Proxy Statement filed on Schedule 14A as filed with the SEC on July 17, 2014)

  ‡10.5

   Rules of Alere Inc. HM Revenue and Customs Approved Share Option Plan (2007), as amended (authorized for use under the Alere Inc. 2001 Stock Option and Incentive Plan and the Alere Inc. 2010 Stock Option and Incentive Plan) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010)

  ‡10.6

   Summary of Terms of Award Agreements under Alere Inc. Stock Option Plans (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2014)

  ‡10.7

   Form of Change of Control Agreement between the Company and each of its executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date October 25, 2014, filed on October 28, 2014)

  ‡10.8

   Summary of Non-Employee Director Compensation (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010)

 

11


Table of Contents

Exhibit

No.

  

Description

  ‡10.9

   Alere Inc. 2001 Employee Stock Purchase Plan, as amended (incorporated by reference to Appendix B to the Company’s Proxy Statement filed on Schedule 14A as filed with the SEC on July 17, 2014)

  ‡10.10

   Restricted Stock Unit Agreement, dated December 30, 2012, between Alere Inc. and Namal Nawana (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K, for the year ended December 31, 2012)

    10.11

   Purchase Agreement dated November 28, 2012 among Alere Inc., the subsidiary guarantors named therein and Jefferies & Company, Inc., Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as Representatives of the Initial Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date November 28, 2012, filed with the SEC on November 30, 2012)

  ‡10.12

   Summary of Arrangement with Chairman of the Board Regarding Expense Reimbursement (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q ,for the quarter ended June 30, 2014)

    10.13

   Purchase Agreement dated May 13, 2013 among Alere Inc., the subsidiary guarantors named therein and Goldman, Sachs & Co., Jefferies LLC and Credit Suisse Securities (USA) LLC, as Representatives of the Initial Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date May 10, 2013, filed May 16, 2013)

    10.14

   Credit Agreement dated as of June 30, 2011 among Alere Inc., as Borrower, the Lenders and L/C Issuers party thereto, General Electric Capital Corporation, as Administrative Agent, Jefferies Finance LLC, as Syndication Agent, and Credit Suisse Securities (USA) LLC, Goldman Sachs Bank USA, DnB Nor Bank ASA and SunTrust Bank, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date June 30, 2011, filed on July 7, 2011)

    10.15

   Guaranty and Security Agreement dated as of June 30, 2011 among Alere Inc., as Borrower, and each Grantor party thereto and General Electric Capital Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, event date June 30, 2011, filed on July 7, 2011)

    10.16

   First Amendment to Credit Agreement dated as of July 27, 2011 among Alere Inc., as Borrower, the Lenders and L/C Issuers party thereto, General Electric Capital Corporation, as Administrative Agent, Jefferies Finance LLC, as Syndication Agent, and Credit Suisse Securities (USA) LLC, Goldman Sachs Bank USA, DnB Nor Bank ASA and SunTrust Bank, as Co-Documentation Agents (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011)

    10.17

   Second Amendment to Credit Agreement dated as of December 7, 2011 among Alere Inc., as Borrower, the Lenders party thereto, and General Electric Capital Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, event date December 7, 2011, filed on December 9, 2011)

    10.18

   Third Amendment to Credit Agreement dated as of March 28, 2012 among Alere Inc., as Borrower, the Lenders party thereto, and General Electric Capital Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date March 28, 2012, filed on April 2, 2012)

    10.19

   Fourth Amendment to Credit Agreement, dated as of March 22, 2013, among Alere Inc., as Borrower, each of the Guarantors (as defined therein), the Lenders party thereto, and General Electric Capital Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013)

    10.20

   Fifth Amendment to Credit Agreement, dated as of May 30, 2014, among Alere Inc., as Borrower, each of the Guarantors (as defined therein), the Lenders party thereto, and General Electric Capital Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event dated May 30, 2014, filed June 5, 2014)

  *10.21

   Sixth Amendment to Credit Agreement, dated as of December 1, 2014, among Alere Inc., as Borrower, each of the Guarantors (as defined therein), the Lenders party thereto, and General Electric Capital Corporation, as Administrative Agent

  *21.1

   List of Subsidiaries of the Company as of March 5, 2015

 

12


Table of Contents

Exhibit

No.

  

Description

  **23.1

   Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

  **31.1

   Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  **31.2

   Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  **32.1

   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act

  *101

   Interactive Data Files regarding (a) our Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012, (b) our Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 2012 (c) our Consolidated Balance Sheets as of December 31, 2014 and 2013, (d) our Consolidated Statements of Equity for the Years Ended December 31, 2014, 2013 and 2012, (e) our Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 and (f) the Notes to such consolidated financial statements.

 

* Previously filed.
** Filed herewith.
*** The Company agrees to furnish supplementally to the Securities and Exchange Commission (“the Commission”) a copy of any omitted schedule or exhibit to this agreement upon request by the Commission.
+ We have omitted portions of this exhibit which have been granted confidential treatment.
Management contract or compensatory plan or arrangement, or amendment thereto.

 

13


Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    ALERE INC.
Date: November 13, 2015     By:  

/s/ Namal Nawana

      Namal Nawana
      Chief Executive Officer and President

 

14


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012

     F-4  

Consolidated Statements of Comprehensive Loss for the Years Ended December 31,  2014, 2013 and 2012

     F-5  

Consolidated Balance Sheets as of December 31, 2014 and 2013

     F-6  

Consolidated Statements of Equity for the Years Ended December 31, 2014, 2013 and 2012

     F-7  

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012

     F-10  

Notes to Consolidated Financial Statements

     F-11  

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Alere Inc.,

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive loss, of equity and of cash flows present fairly, in all material respects, the financial position of Alere Inc. and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

Management and we previously concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2014, because of a material weakness related to the accounting for deferred taxes related to dispositions. However, management has subsequently determined that the Company did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes. As a result, the description of the material weakness for accounting for deferred taxes related to dispositions at December 31, 2014 was revised to state: The Company did not maintain a sufficient complement of resources with adequate experience and expertise in accounting for income taxes, which resulted in controls that did not operate at a level of precision to identify errors in the calculation of tax balances resulting from dispositions and U.S. taxes on foreign earnings. Accordingly, our opinion on the effectiveness of internal control over financial reporting has been restated to include this revised material weakness. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting relating to lack of a sufficient complement of resources with adequate experience and expertise in accounting for income taxes, which resulted in controls that did not operate at a level of precision to identify errors in the calculation of tax balances resulting from dispositions and U.S. taxes on foreign earnings existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2014 consolidated financial statements to correct errors.

As discussed in Notes 3 and 4 to the consolidated financial statements, effective October 1, 2014, the Company changed the manner in which it accounts for discontinued operations.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

F-2


Table of Contents

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 5, 2015, except for the effects of the restatement and revision discussed in Note 2 to the consolidated financial statements, as to which the date is May 28, 2015, and except with respect to our opinion on internal control over financial reporting insofar as it relates to the matter described in the fourth paragraph of Management’s Annual Report on Internal Control over Financial Reporting as to which the date is November 13, 2015

 

F-3


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

     Year Ended December 31,  
     2014
(Restated)
    2013     2012  

Net product sales

   $ 2,035,666      $ 2,056,519      $ 1,899,913   

Services revenue

     531,988        532,616        465,882   
  

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     2,567,654        2,589,135        2,365,795   

License and royalty revenue

     21,050        27,229        28,576   
  

 

 

   

 

 

   

 

 

 

Net revenue

     2,588,704        2,616,364        2,394,371   
  

 

 

   

 

 

   

 

 

 

Cost of net product sales

     1,069,422        1,017,501        920,617   

Cost of services revenue

     294,753        274,045        220,510   
  

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     1,364,175        1,291,546        1,141,127   

Cost of license and royalty revenue

     5,592        7,763        7,354   
  

 

 

   

 

 

   

 

 

 

Cost of net revenue

     1,369,767        1,299,309        1,148,481   
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,218,937        1,317,055        1,245,890   

Operating expenses:

      

Research and development

     144,828        159,053        181,735   

Sales and marketing

     513,801        566,137        556,594   

General and administrative

     453,988        435,199        347,379   

Impairment and (gain) loss on dispositions, net

     7,742        5,124        —     
  

 

 

   

 

 

   

 

 

 

Operating income

     98,578        151,542        160,182   

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

     (209,191     (255,346     (240,397

Other income (expense), net

     (731     (11,260     11,137   
  

 

 

   

 

 

   

 

 

 

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

     (111,344     (115,064     (69,078

Provision (benefit) for income taxes

     82,193        (42,014     (10,742
  

 

 

   

 

 

   

 

 

 

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

     (193,537     (73,050     (58,336

Equity earnings of unconsolidated entities, net of tax

     17,509        17,443        13,245   
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (176,028     (55,607     (45,091

Income (loss) from discontinued operations, net of tax

     138,318        (16,126     (33,126
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (37,710     (71,733     (78,217

Less: Net income attributable to non-controlling interests

     30        976        275   
  

 

 

   

 

 

   

 

 

 

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

     (37,740     (72,709     (78,492

Preferred stock dividends

     (21,293     (21,293     (21,293
  

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (59,033   $ (94,002   $ (99,785
  

 

 

   

 

 

   

 

 

 

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

      

Loss from continuing operations

   $ (2.38   $ (0.95   $ (0.83

Income (loss) from discontinued operations

     1.67        (0.20     (0.41
  

 

 

   

 

 

   

 

 

 

Net loss per common share

   $ (0.71   $ (1.15   $ (1.24
  

 

 

   

 

 

   

 

 

 

Weighted-average shares — basic and diluted

     82,938        81,542        80,587   
  

 

 

   

 

 

   

 

 

 

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

 

F-4


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

     Year Ended December 31,  
     2014
(Restated)
    2013     2012  

Net income (loss)

   $ (37,710   $ (71,733   $ (78,217
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

      

Changes in cumulative translation adjustment

     (166,448     (50,166     54,642   

Unrealized losses on available for sale securities

     (17     —          (216

Unrealized gains on hedging instruments

     38        39        388   

Minimum pension liability adjustment

     (169     (415     (1,042
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     (166,596     (50,542     53,772   

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

     (173     (106     (372
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (166,423     (50,436     54,144   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (204,133     (122,169     (24,073

Less: Comprehensive income attributable to non-controlling interests

     30        976        275   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (204,163   $ (123,145   $ (24,348
  

 

 

   

 

 

   

 

 

 

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

 

F-5


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

     As of December 31,  
     2014
(Restated)
    2013  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 378,461      $ 355,431   

Restricted cash

     37,571        3,458   

Marketable securities

     259        858   

Accounts receivable, net of allowances of $76,163 and $69,146 at December 31, 2014 and December 31, 2013, respectively

     466,106        487,377   

Inventories, net

     365,165        365,267   

Deferred tax assets

     112,573        48,858   

Prepaid expenses and other current assets

     132,413        125,645   

Assets held for sale

     315,515        380,483   
  

 

 

   

 

 

 

Total current assets

     1,808,063        1,767,377   

Property, plant and equipment, net

     453,570        466,497   

Goodwill

     2,926,666        3,006,997   

Other intangible assets with indefinite lives

     43,651        56,702   

Finite-lived intangible assets, net

     1,276,444        1,557,426   

Restricted cash

     —          29,370   

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

     67,832        83,497   

Investments in unconsolidated entities

     91,693        86,830   

Deferred tax assets

     8,569        7,389   

Non-current income tax receivable

     2,468        —     
  

 

 

   

 

 

 

Total assets

   $ 6,678,956      $ 7,062,085   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

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

   $ 88,875      $ 64,112   

Current portion of capital lease obligations

     4,241        5,962   

Accounts payable

     213,592        181,642   

Accrued expenses and other current liabilities

     375,494        381,894   

Liabilities related to assets held for sale

     78,843        133,242   
  

 

 

   

 

 

 

Total current liabilities

     761,045        766,852   
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of current portion

     3,621,385        3,757,788   

Capital lease obligations, net of current portion

     10,560        13,242   

Deferred tax liabilities

     214,639        285,034   

Other long-term liabilities

     161,582        161,031   
  

 

 

   

 

 

 

Total long-term liabilities

     4,008,166        4,217,095   
  

 

 

   

 

 

 

Commitments and contingencies (Notes 10, 11 and 12)

    

Stockholders’ equity:

    

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

     606,468        606,468   

Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 91,532 shares and 89,666 shares at December 31, 2014 and 2013, respectively; Outstanding: 83,853 shares and 81,987 shares at December 31, 2014 and 2013, respectively

     92        90   

Additional paid-in capital

     3,355,672        3,319,168   

Accumulated deficit

     (1,679,552     (1,641,812

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

     (184,971     (184,971

Accumulated other comprehensive loss

     (192,110     (25,687
  

 

 

   

 

 

 

Total stockholders’ equity

     1,905,599        2,073,256   

Non-controlling interests

     4,146        4,882   
  

 

 

   

 

 

 

Total equity

     1,909,745        2,078,138   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 6,678,956      $ 7,062,085   
  

 

 

   

 

 

 

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

 

F-6


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

 

   

 

 

 

Preferred Stock

   

 

 

Common Stock

    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Compre-
hensive
Income
(Loss)
    Treasury Stock,
at cost
    Total
Stockholders’
Equity
    Non-
controlling
Interest
    Total
Equity
    Redeemable
Non-
controlling
Interest
 
    Number of
Shares
    $0.001
Par
Value
                 
  Number of
Shares
    Amount               Number of
Shares
    Value          

BALANCE, DECEMBER 31, 2011

    1,774      $ 606,468        87,647      $ 88      $ 3,324,710      $ (1,490,611   $ (29,395     7,679      $ (184,971   $ 2,226,289      $ 2,340      $ 2,228,629      $ 2,497   

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

    —          —          862        1        14,923        —          —          —          —          14,924        —          14,924        —     

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

    —          —          67        —          1,243        —          —          —          —          1,243        —          1,243        —     

Preferred stock dividends

    —          —          —          —          (21,293     —          —          —          —          (21,293     —          (21,293     —     

Stock-based compensation expense

    —          —          —          —          15,665        —          —          —          —          15,665        —          15,665        —     

Excess tax benefits on exercised stock options

    —          —          —          —          (234     —          —          —          —          (234     —          (234     —     

Minimum pension liability adjustment, net of tax

    —          —          —          —          —          —          (756     —          —          (756     —          (756     —     

Changes in cumulative translation adjustment, net of tax

    —          —          —          —          —          —          54,642        —          —          54,642        —          54,642        —     

Unrealized gain on hedging instruments, net of tax

    —          —          —          —          —          —          388        —          —          388        —          388        —     

Unrealized loss on available-for-sale securities, net of tax

    —          —          —          —          —          —          (130     —          —          (130     —          (130     —     

Purchase of subsidiary shares from non-controlling interest

    —          —          —          —          (35,079     —          —          —          —          (35,079     —          (35,079     (2,434

Non-controlling interest dividend

    —          —          —          —          —          —          —          —          —          —          (396     (396     —     

Net income (loss)

    —          —          —          —          —          (78,492     —          —          —          (78,492     338        (78,154     (63
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2012

    1,774      $ 606,468        88,576      $ 89      $ 3,299,935      $ (1,569,103   $ 24,749        7,679      $ (184,971   $ 2,177,167      $ 2,282      $ 2,179,449      $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

F-7


Table of Contents
   

 

 

 

Preferred Stock

   

 

 

Common Stock

    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Compre-
hensive
Income
(Loss)
    Treasury Stock,
at cost
    Total
Stockholders’
Equity
    Non-
controlling
Interest
    Total
Equity
 
      Number of
Shares
    $0.001
Par
Value
               
    Number of
Shares
    Amount               Number of
Shares
    Value        

BALANCE, DECEMBER 31, 2012

    1,774      $ 606,468        88,576      $ 89      $ 3,299,935      $ (1,569,103   $ 24,749        7,679      $ (184,971   $ 2,177,167      $ 2,282      $ 2,179,449   

Issuance of common stock under employee compensation plans

    —          —          1,090        1        20,714        —          —          —          —          20,715        —          20,715   

Preferred stock dividends

    —          —          —          —          (21,293     —          —          —          —          (21,293     —          (21,293

Stock-based compensation expense

    —          —          —          —          21,210        —          —          —          —          21,210        —          21,210   

Excess tax benefits on exercised stock options

    —          —          —          —          (1,398     —          —          —          —          (1,398     —          (1,398

Minimum pension liability adjustment, net of tax

    —          —          —          —          —          —          (309     —          —          (309     —          (309

Changes in cumulative translation adjustment, net of tax

    —          —          —          —          —          —          (50,166     —          —          (50,166     —          (50,166

Unrealized gain on hedging instruments, net of tax

    —          —          —          —          —          —          39        —          —          39        —          39   

Non-controlling interest from acquisition

    —          —          —          —          —          —          —          —          —          —          1,788        1,788   

Non-controlling interest dividend

    —          —          —          —          —          —          —          —          —          —          (164     (164

Net income (loss)

    —          —          —          —          —          (72,709     —          —          —          (72,709     976        (71,733
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2013

    1,774      $ 606,468        89,666      $ 90      $ 3,319,168      $ (1,641,812   $ (25,687     7,679      $ (184,971   $ 2,073,256      $ 4,882      $ 2,078,138   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

F-8


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (Continued) (Restated)

(in thousands)

 

   

 

 

 

Preferred Stock

   

 

 

Common Stock

    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Compre-
hensive
Loss
    Treasury Stock,
at cost
    Total
Stockholders’
Equity
    Non-
controlling
Interest
    Total
Equity
 
      Number of
Shares
    $0.001
Par
Value
               
    Number of
Shares
    Amount               Number of
Shares
    Value        

BALANCE, DECEMBER 31, 2013

    1,774      $ 606,468        89,666      $ 90      $ 3,319,168      $ (1,641,812   $ (25,687     7,679      $ (184,971   $ 2,073,256      $ 4,882      $ 2,078,138   

Issuance of common stock under employee compensation plans

    —          —          1,866        2        51,553        —          —          —          —          51,555        —          51,555   

Preferred stock dividends

    —          —          —          —          (21,293     —          —          —          —          (21,293     —          (21,293

Stock-based compensation expense

    —          —          —          —          12,452        —          —          —          —          12,452        —          12,452   

Excess tax benefits on exercised stock options

    —          —          —          —          (6,208     —          —          —          —          (6,208     —          (6,208

Minimum pension liability adjustment, net of tax

    —          —          —          —          —          —          4        —          —          4        —          4   

Changes in cumulative translation adjustment, net of tax

    —          —          —          —          —          —          (166,448     —          —          (166,448     —          (166,448

Unrealized gain on hedging instruments and marketable securities, net of tax

    —          —          —          —          —          —          21        —          —          21        —          21   

Non-controlling interest share purchase

    —          —          —          —          —          —                 —          —          —          (766     (766

Net income (loss)

    —          —          —          —                 (37,740            —          —          (37,740     30        (37,710
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2014

    1,774      $ 606,468        91,532      $ 92      $ 3,355,672      $ (1,679,552   $ (192,110     7,679      $ (184,971   $ 1,905,599      $ 4,146      $ 1,909,745   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

F-9


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     For The Year Ended December 31,  
     2014
(Restated)
    2013     2012  

Cash Flows from Operating Activities:

      

Net income (loss)

   $ (37,710   $ (71,733   $ (78,217

Income (loss) from discontinued operations, net of tax

     138,318        (16,126     (33,126
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (176,028     (55,607     (45,091

Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:

      

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

     16,233        17,839        21,346   

Depreciation and amortization

     335,833        374,473        383,900   

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

     —          2,504        4,681   

Non-cash stock-based compensation expense

     12,452        21,210        15,665   

Tax benefit related to discontinued operations retained by Alere Inc.

     9,845        7,882        4,888   

Impairment of inventory

     3,124        337        290   

Impairment of long-lived assets

     7,019        5,818        1,037   

Impairment of intangible assets

     —          686        —     

(Gain) loss on disposition of fixed assets

     6,545        1,471        (3,134

Gain on sales of marketable securities

     —          —          (751

Equity earnings of unconsolidated entities, net of tax

     (17,509     (17,443     (13,245

Deferred income taxes

     (6,982     (129,687     (57,909

Loss on extinguishment of debt

     —          35,603        23,235   

Loss related to impairment and net gain on dispositions

     7,742        5,124        —     

Bargain purchase gain

     —          (8,023     —     

Other non-cash items

     4,965        10,450        7,367   

Changes in assets and liabilities, net of acquisitions:

      

Accounts receivable, net

     (689     (46,672     (19,810

Inventories, net

     (61,110     (82,710     (16,893

Prepaid expenses and other current assets

     (51,998     (11,310     (5,360

Accounts payable

     47,851        17,750        (11,672

Accrued expenses and other current liabilities

     63,689        57,158        41,025   

Other non-current liabilities

     9,150        (20,525     (39,775

Cash paid for contingent consideration

     (22,077     (11,660     (10,317
  

 

 

   

 

 

   

 

 

 

Net cash provided by continuing operations

     188,055        174,668        279,477   

Net cash provided by discontinued operations

     43,468        69,232        40,204   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     231,523        243,900        319,681   
  

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

      

(Increase) decrease in restricted cash

     (5,446     (31,164     5,911   

Purchases of property, plant and equipment

     (100,562     (99,908     (109,097

Proceeds from sale of property, plant and equipment

     1,486        3,618        21,646   

Cash received from disposition, net of cash divested

     45,076        29,000        —     

Cash paid for business acquisitions, net of cash acquired

     (75     (176,131     (419,987

Cash received from investments

     198        —          —     

Proceeds from sale of equity investment

     9,526        —          —     

Cash received from sales of marketable securities

     580        41        3,056   

Cash received from (paid for) equity method investments

     —          29,338        12,707   

(Increase) decrease in other assets

     986        14,723        (56,355
  

 

 

   

 

 

   

 

 

 

Net cash used in continuing operations

     (48,231     (230,483     (542,119

Net cash used in discontinued operations

     (8,972     (26,963     (32,070
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (57,203     (257,446     (574,189
  

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

      

Cash paid for financing costs

     (1,528     (9,845     (10,139

Cash paid for contingent purchase price consideration

     (32,902     (40,079     (20,132

Cash paid for dividends

     (21,293     (21,293     (21,293

Proceeds from issuance of common stock, net of issuance costs

     51,555        20,863        14,924   

Proceeds from issuance of short-term debt

     806        —          —     

Proceeds from issuance of long-term debt

     58        458,962        648,535   

Payments on short-term debt

     —          —          (6,240

Payments on long-term debt

     (65,122     (470,557     (311,312

Net (payments) proceeds under revolving credit facilities

     (42,522     138,963        14,272   

Excess tax benefits on exercised stock options

     972        461        504   

Principal payments on capital lease obligations

     (6,085     (6,533     (6,731

Purchase of non-controlling interest

     (623     (165     (2,972

Other

     —          (18,953     (12,267
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

     (116,684     51,824        287,149   

Net cash provided by (used in) discontinued operations

     (1,471     (2,833     (1,406
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (118,155     48,991        285,743   
  

 

 

   

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     (16,312     (1,871     (2,064
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     39,853        33,574        29,171   

Cash and cash equivalents, beginning of period – continuing operations

     355,431        316,479        287,541   

Cash and cash equivalents, beginning of period – discontinued operations

     6,477        11,855        11,622   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

     401,761        361,908        328,334   

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

     23,300        6,477        11,855   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

   $ 378,461      $ 355,431      $ 316,479   
  

 

 

   

 

 

   

 

 

 

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

 

F-10


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Description of Business and Basis of Presentation of Financial Information

Alere Inc. delivers reliable and actionable health information through rapid diagnostic tests, resulting in better clinical and economic healthcare outcomes globally. A leading global provider of point-of-care diagnostics and services, we have developed a strong commercial presence in cardiometabolic disease, infectious disease, toxicology, and diabetes.

Our business is organized into three operating segments: (i) professional diagnostics, (ii) patient self-testing and (iii) consumer diagnostics. The professional diagnostics segment includes an array of innovative rapid diagnostic test products and other in vitro diagnostic tests marketed to medical professionals and laboratories for detection of diseases and conditions within our areas of focus identified above. The patient-self testing segment provides services designed to provide physicians with actionable data that allow them to make more effective decisions in real time, deliver quality care, and put the individuals they treat on a pathway to better health. The consumer diagnostics segment consists primarily of manufacturing operations related to our role as the exclusive manufacturer of products for SPD Swiss Precision Diagnostics, or SPD, our 50/50 joint venture with The Procter & Gamble Company, or P&G. SPD has significant operations in the worldwide over-the-counter pregnancy and fertility/ovulation test market.

Acquisitions have historically been an important part of our growth strategy. When we acquired businesses, we sought to complement existing products and services, enhance or expand our product lines and/or expand our customer base. We determined what we were willing to pay for each acquisition partially based upon our expectation that we could cost effectively integrate the products and services of the acquired companies into our existing infrastructure. In addition, we utilized existing infrastructure of the acquired companies to cost effectively introduce our products to new geographic areas. All of these factors contributed to the acquisition prices of acquired businesses that were in excess of the fair value of net assets acquired, resulting in goodwill (Note 6).

The consolidated financial statements include the accounts of Alere Inc. and its subsidiaries. Intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of subsidiaries applicable to non-controlling interests. Equity investments in which we exercise significant influence but do not control and are not the primary beneficiary are accounted for using the equity method. Investments in which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method.

Certain amounts for prior periods have been reclassified to conform to the current period classification. These reclassifications had no effect on net income or equity.

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

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

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

 

F-11


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

liabilities of $7.0 million, an increase in income taxes payable of $0.3 million and a decrease in income from discontinued operations of $7.3 million. In the quarter ended December 31, 2014 we recorded a $2.1 million adjustment to decrease income from discontinued operations.

The impact of these errors was determined to be material to our fiscal year 2014 consolidated financial statements and, accordingly, we have restated our consolidated financial statements and related footnotes for the year ended December 31, 2014 and for the three months ended September 30, 2014. We also corrected additional errors in the three months ended September 30 and December 31, 2014 as part of these restatements to correct out-of-period adjustments that were previously determined to be immaterial. In the three months ended September 30, 2014, we recorded a $3.4 million adjustment to increase the provision for income taxes and increase income taxes payable related to an audit settlement. For the three months ended December 31, 2014, we recorded a $5.6 million adjustment to increase the provision for income taxes and increase income taxes payable related to a non-creditable withholding tax on an intercompany dividend. In addition to these adjustments, we are correcting certain other out-of-period adjustments for the three months ended September 30 and December 31, 2014. Those adjustments, in the aggregate, increased the provision for income taxes by $2.9 million and increase the loss from continuing operations before provision (benefit) for income taxes by an additional $0.1 million for the three months ended December 31, 2014. Those adjustments, in the aggregate, increased the provision for income taxes by $0.1 million and decreased loss from continuing operations before provision (benefit) for income taxes by $1.3 million for the three months ended September 30, 2014.

In connection with those restatements, we corrected additional errors in 2012, 2013 and 2014 and in each of the three-month periods ended in 2013 and in each of the three-month periods ended March 31, 2014 and June 30, 2014. We concluded that the correction of these errors was not material individually, or in the aggregate, to our previously issued financial statements. Accordingly, we have revised our consolidated financial statements and related footnotes for the years ended December 31, 2012 and 2013 and for each of the three-month periods ended March 31, 2014 and June 30, 2014 and each of the three-month periods ended in 2013. The adjustments in these periods are all corrections to out-of-period adjustments. The adjustments recorded in connection with the revisions include:

 

   

A $4.6 million decrease in general and administrative expense related to our contingent consideration obligations in the three months ended March 31, 2014.

 

   

A $4.2 million adjustment to reverse the benefit from certain foreign tax credits, which decreased the benefit for income taxes in the three months ended March 31, 2014.

 

   

Additional adjustments to the three months ended March 31, 2014 and June 30, 2014 that, in the aggregate, decreased the loss from continuing operations before provision (benefit) for income taxes by $2.6 million and increased the benefit for income taxes by $0.7 million.

 

   

A $4.6 million increase in general and administrative expense related to our contingent consideration obligations in the three months ended December 31, 2013.

 

   

A $4.2 million adjustment to record the benefit from certain foreign tax credits, which increased the benefit from income taxes in the three months ended December 31, 2013, the period in which this adjustment originated.

 

   

A $4.0 million adjustment to record additional income taxes payable related to various foreign subsidiaries in the three months ended December 31, 2013, which decreased the benefit from income taxes.

 

   

A $5.4 million adjustment to reverse a valuation allowance against state deferred tax assets in the three months ended December 31, 2013, which increased the benefit from income taxes by $5.4 million.

 

F-12


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

   

Additional adjustments to the three-month periods ended March 31, June 30, September 30 and December 31, 2013 that, in the aggregate for the year, increased the loss from continuing operations before provision (benefit) for income taxes by $4.2 million and increased the benefit from income taxes by $1.3 million.

 

   

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

 

   

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

 

   

A $8.7 million adjustment to increase assets held for sale and decrease goodwill as of December 31, 2014.

 

   

A $5.4 million adjustment to record a valuation allowance against state deferred tax assets which decreased the benefit from income taxes in the year ended December 31, 2012, the period in which this adjustment originated.

 

   

Additional adjustments to the year ended December 31, 2012 that, in the aggregate, decreased the loss from continuing operations before provision (benefit) for income taxes by $1.2 million and increased the benefit from income taxes by $4.4 million.

Adjustments recorded in periods prior to December 31, 2011 had the cumulative effect of increasing the opening 2012 accumulated deficit by $3.8 million. In addition, we corrected the disclosure of cash paid for interest for the year ended December 31, 2014 from $102.3 million, as previously reported, to $192.1 million.

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

 

    Year Ended December 31, 2014  

Restated Consolidated

Statement of Operations

(in thousands)

  As Previously
Reported, Giving
Effect to the
Impact  of
Discontinued

Operations
    Restatement
Adjustment
    As
Restated
 

Net product sales

  $   2,033,651      $ 2,015      $   2,035,666   

Net product sales and services revenue

  $ 2,565,639      $ 2,015      $ 2,567,654   

Net revenue

  $ 2,586,689      $ 2,015      $ 2,588,704   

Cost of net product sales

  $ 1,070,268      $ (846   $ 1,069,422   

Cost of service revenue

  $ 288,925      $ 5,828      $ 294,753   

Cost of net product sales and services revenue

  $ 1,359,193      $ 4,982      $ 1,364,175   

Cost of net revenue

  $ 1,364,785      $ 4,982      $ 1,369,767   

Gross profit

  $ 1,221,904      $ (2,967   $ 1,218,937   

General and administrative

  $ 462,108      $ (8,120   $ 453,988   

Operating income

  $ 93,425      $ 5,153      $ 98,578   

Other income (expense), net

  $ (2,733   $ 2,002      $ (731

Loss from continuing operations before benefit for income taxes

  $ (118,499   $ 7,155      $ (111,344

Provision for income taxes

  $ 67,022      $     15,171      $ 82,193   

 

F-13


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

    Year Ended December 31, 2014  

Restated Consolidated

Statement of Operations

(in thousands)

  As Previously
Reported, Giving
Effect to the
Impact  of
Discontinued

Operations
    Restatement
Adjustment
    As
Restated
 

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

  $ (185,521   $ (8,016   $ (193,537

Loss from continuing operations

  $ (168,012   $ (8,016   $ (176,028

Net income from discontinued operations, net of tax

  $ 177,960      $ (39,642   $ 138,318   

Net income (loss)

  $ 9,948      $ (47,658   $ (37,710

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

  $ 9,918      $ (47,658   $ (37,740

Net loss available to common stockholders

  $ (11,375   $ (47,658   $ (59,033

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

  $ (2.28   $ (0.10   $ (2.38

Income from discontinued operations

  $ 2.14      $ (0.47   $ 1.67   

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

  $ (0.14   $ (0.57   $ (0.71
    Year Ended December 31, 2013  

Revised Consolidated

Statement of Operations

(in thousands)

  As Previously
Reported,  Giving

Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net product sales

  $   2,058,534      $ (2,015   $   2,056,519   

Services revenue

  $ 534,099      $ (1,483   $ 532,616   

Net product sales and services revenue

  $ 2,592,633      $ (3,498   $ 2,589,135   

Net revenue

  $ 2,619,862      $ (3,498   $ 2,616,364   

Cost of net product sales

  $ 1,017,632      $ (131   $ 1,017,501   

Cost of service revenue

  $ 272,089      $ 1,956      $ 274,045   

Cost of net product sales and services revenue

  $ 1,289,721      $ 1,825      $ 1,291,546   

Cost of net revenue

  $ 1,297,484      $ 1,825      $ 1,299,309   

Gross profit

  $ 1,322,378      $ (5,323   $ 1,317,055   

General and administrative

  $ 431,666      $ 3,533      $ 435,199   

Operating income

  $ 160,398      $ (8,856   $ 151,542   

Loss from continuing operations before benefit for income taxes

  $ (106,208   $ (8,856   $ (115,064

Benefit for income taxes

  $ (35,167   $ (6,847   $ (42,014

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

  $ (71,041   $ (2,009   $ (73,050

Loss from continuing operations

  $ (53,598   $ (2,009   $ (55,607

Loss from discontinued operations, net of tax

  $ (16,680   $ 554      $ (16,126

Net loss

  $ (70,278   $ (1,455   $ (71,733

Net loss attributable to Alere Inc. and Subsidiaries

  $ (71,254   $ (1,455   $ (72,709

Net loss available to common stockholders

  $ (92,547   $ (1,455   $ (94,002

Basic and diluted loss per common share: Loss from continuing operations

  $ (0.92   $ (0.03   $ (0.95

Loss from discontinued operations

  $ (0.21   $ 0.01      $ (0.20

Basic and diluted loss per common share: Net loss per common share

  $ (1.13   $ (0.02   $ (1.15

 

F-14


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

     Year Ended December 31, 2012  

Revised Consolidated

Statement of Operations

(in thousands)

   As Previously
Reported, Giving
Effect to the

Impact of
Discontinued
Operations
    Revision
Adjustment
    As Revised  

Services revenue

   $ 464,637      $     1,245      $ 465,882   

Net product sales and services revenue

   $   2,364,550      $ 1,245      $   2,365,795   

Net revenue

   $ 2,393,126      $ 1,245      $ 2,394,371   

Cost of net product sales

   $ 920,385      $ 232      $ 920,617   

Cost of service revenue

   $ 221,228      $ (718   $ 220,510   

Cost of net product sales and services revenue

   $ 1,141,613      $ (486   $ 1,141,127   

Cost of net revenue

   $ 1,148,967      $ (486   $ 1,148,481   

Gross profit

   $ 1,244,159      $ 1,731      $ 1,245,890   

Sales and marketing

   $ 556,724      $ (130   $ 556,594   

General and administrative

   $ 348,817      $ (1,438   $ 347,379   

Operating income

   $ 156,883      $ 3,299      $ 160,182   

Loss from continuing operations before benefit for income taxes

   $ (72,377   $ 3,299      $ (69,078

Benefit for income taxes

   $ (12,880   $ 2,138      $ (10,742

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

   $ (59,497   $ 1,161      $ (58,336

Loss from continuing operations

   $ (46,252   $ 1,161      $ (45,091

Net loss from discontinued operations, net of tax

   $ (31,655   $ (1,471   $ (33,126

Net loss

   $ (77,907   $ (310   $ (78,217

Net loss attributable to Alere Inc. and Subsidiaries

   $ (78,182   $ (310   $ (78,492

Net loss available to common stockholders

   $ (99,475   $ (310   $ (99,785

Basic and diluted net loss per common share: Loss from continuing operations

   $ (0.85   $ 0.02      $ (0.83

Loss from discontinued operations

   $ (0.38   $ (0.03   $ (0.41

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

   $ (1.23   $ (0.01   $ (1.24

 

     Year Ended December 31, 2014  

Restated Consolidated

Statement of Comprehensive Loss

(in thousands)

   As Previously
Reported, Giving

Effect to the
Impact of
Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Net income (loss)

   $ 9,948      $ (47,658   $ (37,710

Comprehensive loss

   $ (156,475   $ (47,658   $ (204,133

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (156,505   $ (47,658   $   (204,163

 

F-15


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

     Year Ended December 31, 2013  

Revised Consolidated

Statement of Comprehensive Loss

(in thousands)

   As Previously
Reported, Giving
Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As
Revised
 

Net loss

   $ (70,278   $ (1,455   $ (71,733

Comprehensive loss

   $ (120,714   $ (1,455   $ (122,169

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (121,690   $ (1,455   $   (123,145
     Year Ended December 31, 2012  

Revised Consolidated

Statement of Comprehensive Loss

(in thousands)

   As Previously
Reported, Giving
Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As
Revised
 

Net loss

   $ (77,907   $ (310   $ (78,217

Comprehensive loss

   $ (23,763   $ (310   $ (24,073

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (24,038   $ (310   $ (24,348

 

     As of December 31, 2014  

Restated Consolidated

Balance Sheet

(In thousands)

   As Previously
Reported,  Giving

Effect to the
Impact of
Discontinued
Operations
    Restatement
Adjustment
    As Restated  

Deferred tax assets

   $ 146,812      $ (34,239   $ 112,573   

Prepaid expenses and other current assets

   $ 131,554      $ 859      $ 132,413   

Assets held for sale

   $ 306,865      $ 8,650      $ 315,515   

Total current assets

   $ 1,832,793      $ (24,730   $ 1,808,063   

Property, plant and equipment

   $ 456,767      $ (3,197   $ 453,570   

Goodwill

   $ 2,936,581      $ (9,915   $     2,926,666   

Deferred tax assets

   $ 9,812      $ (1,243   $ 8,569   

Total assets

   $ 6,718,041      $ (39,085   $ 6,678,956   

Accrued expenses and other current liabilities

   $ 365,954      $ 9,540      $ 375,494   

Liabilities related to assets held for sale

   $ 70,752      $ 8,091      $ 78,843   

Total current liabilities

   $ 743,414      $ 17,631      $ 761,045   

Deferred tax liabilities

   $ 215,274      $ (635   $ 214,639   

Other long-term liabilities

   $ 164,925      $ (3,343   $ 161,582   

Total long-term liabilities

   $ 4,012,144      $ (3,978   $ 4,008,166   

Accumulated deficit

   $ (1,625,939   $ (53,613   $ (1,679,552

Accumulated other comprehensive loss

   $ (192,985   $ 875      $ (192,110

Total stockholders’ equity

   $ 1,958,337      $ (52,738   $ 1,905,599   

Total equity

   $ 1,962,483      $ (52,738   $ 1,909,745   

Total liabilities and equity

   $ 6,718,041      $ (39,085   $ 6,678,956   

 

F-16


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

     As of December 31, 2013  

Revised Consolidated

Balance Sheet

(In thousands)

   As Previously
Reported, Giving
Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As Revised  

Accounts receivable, net of allowances

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

Inventories, net

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

Deferred tax assets

   $ 48,085      $ 773      $ 48,858   

Prepaid expenses and other current assets

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

Assets held for sale

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

Total current assets

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

Property, plant and equipment

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

Goodwill

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

Deferred tax assets

   $ 7,959      $ (570   $ 7,389   

Total assets

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

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

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

Accounts payable

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

Accrued expenses and other current liabilities

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

Liabilities related to assets held for sale

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

Total current liabilities

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

Long-term debt, net of current portion

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

Deferred tax liabilities

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

Other long-term liabilities

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

Total long-term liabilities

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

Accumulated deficit

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

Accumulated other comprehensive loss

   $ (26,562   $ 875      $ (25,687

Total stockholders’ equity

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

Total equity

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

Total liabilities and equity

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

 

Revised Consolidated

Statement of Equity

(in thousands)

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

Accumulated deficit, Balance at December 31, 2011

   $ (1,486,791   $ (3,820   $ (1,490,611

Net loss

   $ (78,182   $ (310   $ (78,492

Accumulated deficit, Balance at December 31, 2012

   $ (1,564,973   $ (4,130   $ (1,569,103

Total stockholders’ equity, Balance at December 31, 2011

   $ 2,229,234      $ (2,945   $     2,226,289   

Net loss

   $ (78,182   $ (310   $ (78,492

Total stockholders’ equity, Balance at December 31, 2012

   $ 2,180,422      $ (3,255   $ 2,177,167   

Total equity, Balance at December 31, 2011

   $ 2,234,071      $ (2,945   $ 2,231,126   

Net loss

   $ (78,182   $ (310   $ (78,492

Total equity, Balance at December 31, 2012

   $ 2,182,704      $ (3,255   $ 2,179,449   

 

F-17


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

Revised Consolidated

Statement of Equity

(in thousands)

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

Accumulated deficit, Balance at December 31, 2012

   $ (1,564,973   $ (4,130   $ (1,569,103

Net loss

   $ (71,254   $ (1,455   $ (72,709

Accumulated deficit, Balance at December 31, 2013

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

Total stockholders’ equity, Balance at December 31, 2012

   $ 2,180,422      $ (3,255   $     2,177,167   

Net loss

   $ (71,254   $ (1,455   $ (72,709

Total stockholders’ equity, Balance at December 31, 2013

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

Total equity, Balance at December 31, 2012

   $ 2,182,704      $ (3,255   $ 2,179,449   

Net loss

   $ (70,278   $ (1,455   $ (71,733

Total equity, Balance at December 31, 2013

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

 

Restated Consolidated

Statement of Equity

(in thousands)

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

Accumulated deficit, Balance at December 31, 2013

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

Net income (loss)

   $ 9,948      $ (47,658   $ (37,710

Accumulated deficit, Balance at December 31, 2014

   $ (1,625,939   $ (53,613   $ (1,679,552

Total stockholders’ equity, Balance at December 31, 2013

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

Net income (loss)

   $ 9,948      $ (47,658   $ (37,710

Total stockholders’ equity, Balance at December 31, 2014

   $ 1,958,337      $ (52,738   $ 1,905,599   

Total equity, Balance at December 31, 2013

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

Net income (loss)

   $ 9,948      $ (47,658   $ (37,710

Total equity, Balance at December 31, 2014

   $ 1,962,483      $ (52,738   $ 1,909,745   

 

     Year Ended December 31, 2014  

Restated Consolidated

Statement of Cash Flows

(In thousands)

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

Net income (loss)

   $ 9,948      $ (47,658   $ (37,710

Income from discontinued operations, net of tax

   $ 177,960      $ (39,642   $     138,318   

Loss from continuing operations

   $ (168,012   $ (8,016   $ (176,028

Impairment of long-lived assets

   $ 7,865      $ (846   $ 7,019   

Deferred income taxes

   $ (11,947   $ 4,965      $ (6,982

Accounts receivable, net

   $ 1,326      $ (2,015   $ (689

Prepaid expenses and other current assets

   $ (47,997   $ (4,001   $ (51,998

Accrued expenses and other current liabilities

   $ 55,271      $ 8,418      $ 63,689   

Other non-current liabilities

   $ 9,964      $ (814   $ 9,150   

Purchases of property, plant and equipment

   $ (102,870   $ 2,308      $ (100,562

Net cash used in continuing operations – investing activities

   $ (50,539   $ 2,308      $ (48,231

Net cash used in investing activities

   $ (59,511   $ 2,308      $ (57,203

 

F-18


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

     Year Ended December 31, 2013  

Revised Consolidated

Statement of Cash Flows

(in thousands)

   As Previously
Reported, Giving
Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net loss

   $ (70,278   $ (1,455   $ (71,733

Loss from discontinued operations, net of tax

   $ (16,680   $ 554      $ (16,126

Loss from continuing operations

   $ (53,598   $ (2,009   $ (55,607

Impairment of long-lived assets

   $ 5,949      $ (131   $ 5,818   

Deferred income taxes

   $ (117,938   $ (11,749   $ (129,687

Accounts receivable, net

   $ (50,170   $ 3,498      $ (46,672

Inventories, net

   $ (79,610   $ (3,100   $ (82,710

Prepaid expenses and other current assets

   $ (6,121   $ (5,189   $ (11,310

Accounts payable

   $ 15,673      $ 2,077      $ 17,750   

Accrued expenses and other current liabilities

   $ 50,112      $ 7,046      $ 57,158   

Other non-current liabilities

   $ (27,443   $ 6,918      $ (20,525

Net cash provided by continuing operations – operating activities

   $ 177,319      $ (2,651   $     174,668   

Net cash provided by discontinued operations – operating activities

   $ 67,470      $ 1,762      $ 69,232   

Purchases of property, plant and equipment

   $ (100,797   $ 889      $ (99,908

Net cash used in continuing operations – investing

   $ (231,372   $ 889      $ (230,483

Net cash used in investing activities

   $ (258,335   $ 889      $ (257,446

 

     Year Ended December 31, 2012  

Revised Consolidated

Statement of Cash Flows

(in thousands)

   As Previously
Reported, Giving
Effect to the
Impact of
Discontinued
Operations
    Revision
Adjustment
    As Revised  

Net loss

   $ (77,907   $ (310   $ (78,217

Loss from discontinued operations, net of tax

   $ (31,655   $ (1,471   $ (33,126

Loss from continuing operations

   $ (46,252   $ 1,161      $ (45,091

Impairment of long-lived assets

   $ 805      $ 232      $ 1,037   

Deferred income taxes

   $ (63,565   $ 5,656      $ (57,909

Accounts receivable, net

   $ (18,327   $ (1,483   $ (19,810

Accrued expenses and other current liabilities

   $ 43,547      $ (2,522   $     41,025   

Other non-current liabilities

   $ (36,730   $ (3,045   $ (39,775

The Company has also reflected these corrections as applicable in its consolidated financial statements and also in the consolidating financial statements presented in Note 26 Guarantor Financial Information.

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(3)  Discontinued Operations

On October 10, 2014, we completed the sale of our ACS subsidiary to ACS Acquisition, LLC (the “Purchaser”), pursuant to the terms of a Membership Interest Purchase Agreement with the Purchaser and Sumit Nagpal. In connection with the sale of ACS, we also agreed to sell our subsidiary Wellogic ME FZ – LLC (“Wellogic,” together with ACS, the “ACS Companies”) to the Purchaser, subject to the satisfaction of routine requirements of Dubai law relating to the transfer of equity. The ACS Companies were included in our patient self-testing segment. The purchase price for the ACS Companies consisted of cash proceeds of $2.00 at closing and contingent consideration of up to an aggregate of $7.0 million, consisting of (i) payments based on the gross revenues of the ACS Companies, (ii) payments to be made in connection with financing transactions by the Purchaser or the ACS Companies and (iii) payments to be made in connection with a sale by the Purchaser of the ACS Companies. In connection with the sale, we agreed to reimburse the Purchaser for up to $750,000 of the Purchaser’s and the ACS Companies’ transitional expenses. We accounted for our divestiture of the ACS Companies in accordance with ASC 205, Presentation of Financial Statements.

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

We accounted for our divestiture of the health management business in accordance with ASU No. 2014-08. See Note 4. The following assets and liabilities associated with the health management business have been segregated and classified as assets held for sale and liabilities related to assets held for sale, as appropriate, in the consolidated balance sheets as of December 31, 2014 and 2013, respectively (in thousands):

 

      December 31, 2014
(Restated)
     December 31, 2013  

Assets

     

Cash and cash equivalents

   $ 23,300       $ 6,477   

Restricted cash

     361         2,915   

Accounts receivable, net of allowances of $5,882 and $7,497 at December 31, 2014 and 2013, respectively

     50,902         59,337   

Inventories, net

     1,656         2,018   

Deferred tax assets – current

     6,939         12,604   

Prepaid expenses and other current assets

     3,857         6,074   

Property, plant and equipment, net

     57,595         76,932   

Goodwill

     82,665         86,365   

Finite-lived intangible assets, net

     82,428         127,185   

Deferred tax assets – non-current

     3,347           

Other non-current assets

     2,465         576   
  

 

 

    

 

 

 

Total assets held for sale

   $ 315,515       $ 380,483   
  

 

 

    

 

 

 

Liabilities

     

Current portion of capital lease obligations

   $ 799       $ 893   

Accounts payable

     5,654         7,806   

Accrued expenses and other current liabilities

     32,822         49,243   

Capital lease obligations, net of current portion

     365         1,165   

Deferred tax liabilities – non-current

     27,453         35,879   

Other long-term liabilities

     11,750         38,256   
  

 

 

    

 

 

 

Total liabilities related to assets held for sale

   $ 78,843       $ 133,242   
  

 

 

    

 

 

 

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3)  Discontinued Operations (Continued)

 

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

 

     For The Years Ended December 31,  
     2014
(Restated)
    2013     2012  

Net revenue

   $ 359,496      $ 409,579      $ 425,938   

Cost of net revenue

     (203,115     (229,310     (243,111

Research and development

            (1,750     (1,266

Sales and marketing

     (56,808     (73,700     (86,829

General and administrative

     (99,383     (129,565     (145,387

Interest expense

     (506     (310     (164

Other income (expense), net

     (1,799     (1,860     (1,179
  

 

 

   

 

 

   

 

 

 

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

     (2,115     (26,916     (51,998

Provision (benefit) for income taxes

     (140,433     (10,790)        (18,872
  

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

   $ 138,318      $ (16,126   $ (33,126
  

 

 

   

 

 

   

 

 

 

(4)  Summary of Significant Accounting Policies

(a)  Use of Estimates

To prepare our financial statements in conformity with accounting principles generally accepted in the United States of America, our management must make estimates, judgments and assumptions that may affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from such estimates under different assumptions or conditions.

(b)  Foreign Currencies

In general, the functional currencies of our foreign subsidiaries are the local currencies. For the purpose of consolidating the financial statements of our foreign subsidiaries, all assets and liabilities of the foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date, while the stockholders’ equity accounts are translated at historical exchange rates. Translation gains and losses that result from the conversion of the balance sheets of the foreign subsidiaries into U.S. dollars are recorded to cumulative translation adjustment, which is a component of accumulated other comprehensive income (loss) (Note 16) within stockholders’ equity. The revenue and expenses of our foreign subsidiaries are translated using the average of the rates of exchange in effect during each fiscal month.

Net realized and unrealized foreign currency exchange transaction losses of $12.8 million, $4.0 million and $7.9 million during 2014, 2013 and 2012, respectively, are included as a component of other income (expense), net in the accompanying consolidated statements of operations.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

(c)  Cash and Cash Equivalents

We consider all highly-liquid investments purchased with original maturities of three months or less at the date of acquisition to be cash equivalents. Cash equivalents consisted of money market funds at December 31, 2014 and 2013.

(d)  Restricted Cash

We had restricted cash of $37.6 million and $32.8 million as of December 31, 2014 and 2013, respectively. As of December 31, 2013, $29.4 million was classified as non-current on our consolidated balance sheet, as it secures a foreign bank loan arrangement that we entered into during the third quarter of 2013 and, under the terms of the loan agreement, is required to remain on deposit for two years.

(e)  Marketable Securities

Securities classified as available-for-sale or trading are carried at fair value, as determined by quoted market prices at the balance sheet date. Realized gains and losses on securities are included in other income (expense), net, on a specific identification basis. Unrealized holding gains and losses (except for other than temporary impairments) on securities classified as available-for-sale, are reported in accumulated other comprehensive income (loss), net of related tax effects. Marketable securities that are held indefinitely are classified in our accompanying consolidated balance sheets as long-term marketable securities.

(f)  Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and are made up of raw material, work-in-process and finished goods. The cost elements of work-in-process and finished goods inventory consist of raw material, direct labor and manufacturing overhead. Where finished goods inventory is purchased from third-party manufacturers, the costs of finished goods inventory recorded in the financial statements represent the costs to acquire such inventory.

(g)  Property, Plant and Equipment

We record property, plant and equipment at historical cost or, in the case of a business combination, at fair value on the date of the business combination. Depreciation is computed using the straight-line method based on the following estimated useful lives of the related assets: machinery, laboratory equipment and tooling, 1-15 years; buildings, 7-61 years; leasehold improvements, lesser of the remaining term of the lease or estimated useful life of the asset; computer software and equipment, 1-10 years and furniture and fixtures, 2-16 years. Land is not depreciated. Depreciation expense related to property, plant and equipment amounted to $97.5 million, $94.2 million and $84.5 million in 2014, 2013 and 2012, respectively. Fully-depreciated property, plant and equipment that are still in use remain on the books until disposal or retirement. When property, plant and equipment are retired or disposed of, the cost and respective accumulated depreciation are removed from the books. Any gain or loss on disposal is recorded in the income statement. Expenditures for repairs and maintenance are expensed as incurred.

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

(h)  Goodwill and Other Intangible Assets with Indefinite Lives

Goodwill relates to amounts that arose in connection with our various business combinations and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the acquisition method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment.

We test goodwill and other intangible assets with indefinite lives at the reporting unit level for impairment on an annual basis and between annual tests, if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business and an adverse action or assessment by a regulator.

In performing the annual goodwill impairment test, we utilize the two-step approach. The first step, or Step 1, requires a comparison of the carrying value of each reporting unit to its estimated fair value. To estimate the fair value of our reporting units for Step 1, we use a combination of the income approach, the market comparable approach and the market transaction approach. The income approach is based on a discounted cash flow analysis, or DCF approach, and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value, using a risk-adjusted discount rate. Assumptions used in the DCF approach require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent budget and for years beyond the budget, our estimates are based on assumed growth rates. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF approach are based on estimates of the weighted-average cost of capital, or WACC, of market participants relative to each respective reporting unit. The market approaches consider comparable and transactional market data based on multiples of revenue or earnings before interest, taxes, depreciation and amortization, or EBITDA based on trading multiples of selected guidelines companies and deal multiples of selected target companies.

If the carrying value of a reporting unit exceeds its estimated fair value, we are required to perform the second step, or Step 2, of the annual goodwill impairment test to measure the amount of impairment loss, if any. Step 2 of the goodwill impairment test compares the implied fair value of a reporting unit’s goodwill to its carrying value. The implied fair value of goodwill is calculated as the difference between the fair value of the reporting unit and the estimated fair value of its assets and liabilities. To the extent this amount is below the carrying value of goodwill, an impairment charge is recorded to write down the carrying value to its implied value.

Impairment charges related to goodwill have no impact on our cash balances or on compliance with financial covenants under our Amended and Restated Credit Agreement.

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

2014 Annual Goodwill Impairment Test

We conducted our 2014 annual goodwill impairment test for our reporting units during the fourth quarter of 2014. For our patient self-testing reporting unit, we utilized the purchase price for the sale of our health management business as the estimated fair value of the health management business and combined that with the estimated fair value of the remaining patient self-testing reporting unit which was determined using a combination of the income approach, the market comparable approach and the market transaction approach to arrive at the total estimated fair value of the patient self-testing business. Key assumptions (which vary by reporting unit) used in determining fair value under the DCF approach included discount rates ranging from 10.5% to 15.5%, projected compound average revenue growth rates of 3.0% to 11.0% and terminal value growth rates of 3.0% to 4.0%. In determining the appropriate discount rate, we considered the WACC for each reporting unit, which among other factors considers the cost of common equity capital and the marginal cost of debt of market participants. Key assumptions (which again vary by reporting unit) used in determining fair value under the market approaches were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly-traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of 1.2 to 2.9 times and multiples of EBITDA of 7.1 to 11.8 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.

The Step 1 impairment test indicated the estimated fair value of the professional diagnostics, patient self-testing and consumer diagnostics reporting units exceeded the carrying value of their reporting unit’s net assets as follows: by $2.2 billion, $515.6 million and $86.8 million, respectively, or 42.4%, 162.1% and 38.0%, respectively.

As discussed in Note 3, our health management business met the criteria for assets held for sale as of December 31, 2014 and the sale was subsequently completed on January 9, 2015. Accordingly, we performed a Step 1 impairment test on the goodwill remaining in the patient self-testing reporting unit at December 31, 2014. The Step 1 impairment test indicated that the estimated fair value of the remaining patient self-testing reporting unit exceeded the carrying value of the reporting unit’s net assets by 67%.

The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill and identifiable intangible asset testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environment or anticipated growth rates are not correct, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

2013 Annual Goodwill Impairment Test

We conducted our 2013 annual goodwill impairment test for our reporting units during the fourth quarter of 2013. Key assumptions (which vary by reporting unit) used in determining fair value under the DCF approach included discount rates ranging from 11.0% to 14.0%, projected compound average revenue growth rates of 4.0% to 11.4% and terminal value growth rates of 3.0% to 4.0%. The factors considered in determining the appropriate discount rate and the key assumptions were the same as those in the 2014 annual goodwill impairment test described above. Based on the multiples implied by this market data, we selected multiples of revenue of 0.8 to 2.9 times and multiples of EBITDA of 6.4 to 10.6 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.

The Step 1 impairment test indicated the estimated fair value of the professional diagnostics, patient self-testing and consumer diagnostics reporting units exceeded the carrying value of their reporting unit’s net assets as follows: by $1.6 billion, $34.7 million and $92.7 million, respectively, or 30.3%, 8.5% and 45.5%, respectively.

2012 Annual Goodwill Impairment Test

We conducted our 2012 annual goodwill impairment test for our reporting units during the fourth quarter of 2012. Key assumptions (which vary by reporting unit) used in determining fair value under the DCF approach included discount rates ranging from 11.0% to 15.0%, projected compound average revenue growth rates of 3.0% to 8.1% and terminal value growth rates of 3.0% to 4.0%. The factors considered in determining the appropriate discount rate and the key assumptions were the same as those in the 2014 annual goodwill impairment test described above. Based on the multiples implied by this market data, we selected multiples of revenue of 0.9 to 2.4 times and multiples of EBITDA of 6.1 to 8.9 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.

The Step 1 impairment test indicated the estimated fair value of the professional diagnostics, patient self-testing and consumer diagnostics reporting units exceeded the carrying value of their reporting unit’s net assets as follows: by $399.2 million, $45.2 million and $53.9 million, respectively, or 7.9%, 10.2% and 27.2%, respectively.

(i)  Impairment of Other Long-lived Tangible and Intangible Assets

Our intangible assets consist primarily of core technology, in-process research and development, patents, trademarks, trade names, customer relationships, distribution rights and non-competition agreements. The majority of our intangible assets were recorded in connection with our various business combinations. Our intangible assets are recorded at fair value at the time of their acquisition. We amortize intangible assets over their estimated useful lives.

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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

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.

We evaluate long-lived tangible and intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present with respect to long-lived tangible and intangible assets used in operations and undiscounted future cash flows are not expected to be sufficient to recover the assets’ carrying amount, additional analysis is performed as appropriate and the carrying value of the long-lived assets is reduced to the estimated fair value, if this is lower, and an impairment loss is charged to expense in the period the impairment is identified.

(j)  Acquired In-process Research and Development (IPR&D)

Acquired IPR&D represents the fair value assigned to research and development assets that we acquire as part of business combinations, and which have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and tested for impairment at least annually until commercialization, after which time the IPR&D is amortized over its estimated useful life. We utilize a discounted probable future cash flow model on a project-by-project basis to value acquired IPR&D. Significant assumptions used in the model include the period in which material net cash inflows from significant projects are expected to commence, anticipated material changes from historical pricing, margins and expense levels and an appropriate risk adjusted discount rate applied to the project’s cash flows.

(k)  Business Acquisitions

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.

Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.

We generally employ the income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product life cycles, economic barriers to entry, a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. We are not aware of any information that indicates the final fair value analysis will differ materially from the preliminary estimates.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

During 2014, 2013 and 2012, we expensed acquisition-related costs of $0.9 million, $3.1 million and $9.7 million, respectively, in general and administrative expense.

(l)  Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized in the future (Note 17).

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.

(m)  Revenue Recognition

We primarily recognize revenue when the following four basic criteria have been met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed or determinable and (4) collection is reasonably assured.

The majority of our revenue is derived from product sales. We recognize revenue upon transfer of the title of the products to third-party customers, less a reserve for estimated product returns and allowances. Determination of the reserve for estimated product returns and allowances is based on our management’s analyses and judgments regarding certain conditions. Should future changes in conditions prove management’s conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be adversely affected.

For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete. For sales that include customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. Certain of our products require specialized installation. Revenue for these products is deferred until installation is completed. Revenue from services is deferred and recognized over the contractual period, or as services are rendered and accepted by the customer. When arrangements include multiple elements, we use objective evidence of fair value to allocate revenue to the elements, and recognize revenue when the criteria for revenue recognition have been met for each element, in accordance with authoritative guidance on multiple-element arrangements.

Additionally, with respect to our health management business which is included in discontinued operations, we generate services revenue in connection with contracts with health plans (both commercial and governmental) and self-insured employers, whereby we provide clinical expertise through fee-based arrangements. Revenue for fee-based arrangements is recognized over the period in which the services are provided. Some contracts provide that a portion of our fees are at risk if our

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

customers do not achieve certain financial cost savings or we do not achieve certain other clinical and operational metrics, over a period of time, typically one year. Revenue subject to refund is not recognized if (i) sufficient information is not available to calculate performance measurements or (ii) interim performance measurements indicate that we are not meeting performance targets. If either of these two conditions exists, we record the amounts as other current liabilities in the consolidated balance sheet, deferring recognition of the revenue until we establish that we have met the performance criteria. However, revenue recognized for fees subject to refund before the end of the contract period is realizable under the termination provisions or other provisions of the contract. If we do not meet the performance targets at the end of the contractual period, we are obligated under the contract to refund some or all of the at-risk fees.

We also receive license and royalty revenue from agreements with third-party licensees. Revenue from license and royalty agreements is recognized on a straight-line basis over the obligation period of the related license agreements, or at the time when we have no further obligations. License and royalty fees that the licensees calculate based on their sales, which we have the right to audit under most of our agreements, are generally recognized upon receipt of the license or royalty payments unless we are able to reasonably estimate the fees as they are earned. License and royalty fees that are determinable prior to the receipt thereof are recognized in the period they are earned.

(n)  Employee Stock-Based Compensation Arrangements

We account for share-based payments in accordance with Accounting Standards Codification, or ASC 718, Compensation — Stock Compensation. Compensation expense associated with stock options includes amortization based on the grant-date fair value estimated in accordance with the provisions of ASC 718. In addition, we record expense over the offering period in connection with shares issued under our employee stock purchase plan. Compensation expense for stock-based compensation awards includes an estimate for forfeitures and is recognized over the vesting period of the options using the straight-line method. It is our policy to recognize, through additional paid in capital, the excess or windfall tax benefits on stock option deductions, as those deductions are recognized on tax returns.

Our stock option plans provide for grants of options to employees to purchase common stock at or above the fair market value of such shares on the grant date of the award. The options generally vest over a four-year period, beginning on the date of grant, with a graded vesting schedule of 25% at the end of each of the four years. The fair value of each option grant is estimated on the date of grant primarily using a Black-Scholes option-pricing method. We use historical data to estimate the expected price volatility and the expected forfeiture rate. The contractual term of our stock option awards is ten years. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant with a remaining term equal to the expected term of the option. We have not made any dividend payments to common shareholders nor do we have plans to pay dividends in the foreseeable future.

(o)  Net Loss per Common Share

Net loss per common share is based upon the weighted-average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year (Note 13).

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

(p)  Other Operating Expenses

We expense advertising costs as incurred. In 2014, 2013 and 2012, advertising costs amounted to $8.0 million, $10.6 million and $22.0 million, respectively, and are included in sales and marketing expenses in the accompanying consolidated statements of operations.

Shipping and handling costs are included in cost of net revenue in the accompanying consolidated statements of operations. When we charge our customers for shipping and handling costs, these costs are recorded along with product revenues.

(q) Concentration of Credit Risk, Off-Balance Sheet Risks and Other Risks and Uncertainties

Financial instruments that potentially subject us to concentration of credit risk primarily consist of cash and cash equivalents and accounts receivable. We invest our excess cash primarily in high quality securities and limit the amount of our credit exposure to any one financial institution. We do not require collateral or other securities to support customer receivables; however, we perform on-going credit evaluations of our customers and maintain allowances for potential credit losses.

At December 31, 2014 and 2013, no individual customer’s accounts receivable balance was more than 10% of our aggregate accounts receivable. During 2014, 2013 and 2012, no one customer represented more than 10% of our net revenue.

We rely on a number of third parties to manufacture certain of our products. If any of our third-party manufacturers cannot, or will not, manufacture our products in the required volumes, on a cost-effective basis, in a timely manner, or at all, we will have to secure additional manufacturing capacity. Any interruption or delay in manufacturing could have a material adverse effect on our business and operating results.

(r)  Financial Instruments and Fair Value of Financial Instruments

Our primary financial instruments at December 31, 2014 and 2013 consisted of cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable and debt. We apply fair value measurement accounting to value our financial assets and liabilities. 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.

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

(s)  Software for Internal Use and for Resale

We may capitalize certain costs associated with the development of internal-use software, including direct materials and services. Capitalized software is amortized on a straight-line basis over its estimated useful life and is included in computer software and equipment within property, plant and equipment.

We also develop software for resale or lease to external parties and expense the costs of developing software for resale or lease incurred before establishment of technological feasibility of the underlying software. The costs incurred from establishment of technological feasibility until general release of the software are capitalized, and the capitalized software is amortized over its estimated useful life. Capitalized software for resale or lease is included in computer software and equipment within property, plant and equipment.

(t)  Research and Development

Our research and development programs focus on the development of cardiometabolic, infectious disease and toxicology products. Research and development costs are expensed as incurred. Payments received from external parties to fund our research and development activities reduce the recorded research and development expenses.

(u)  Leases

We lease certain facilities and equipment from external parties under operating leases. Rent expense related to operating leases is recorded in the income statement as incurred. We also lease machinery, laboratory equipment, tooling and other equipment under capital leases. In determining whether a lease is a capital or an operating lease, we estimate the expected term of the lease, which includes certain renewable options as required by lease accounting guidance. Rent deferrals, landlord incentives and rent escalations are included in calculation of minimum lease payments when performing the capital lease tests and when calculating the rent expense for operating leases.

Leased property, plant and equipment that meet the capital lease criteria are capitalized at the lower of the present value of the minimum lease payments or the fair value of the underlying asset at the inception date of the lease. Assets under capital leases are depreciated on a straight-line basis over the lease term.

Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the remainder of the expected term of the lease.

(v)  Recent Accounting Pronouncements

Recently Issued Standards

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

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Summary of Significant Accounting Policies (Continued)

 

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. We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

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

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 April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) — Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 requires that only disposals representing a strategic shift in operations which has a major effect on the organization’s operations and financial results, such as a disposal of a major geographic area, a major line of business, or a major equity method investment, should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. ASU 2014-08 is effective in the first quarter of 2015 with early adoption permitted. Effective October 1, 2014, we adopted ASU 2014-08. As a result of our early adoption of this standard, we reported our divestiture of BioNote, Inc., or BioNote, as a gain on disposition within operating income from continuing operations. See Note 3 and Note 24.

In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting, or ASU 2014-17. ASU 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. ASU 2014-17 is effective on November 18, 2014. Effective November 18, 2014, we adopted ASU 2014-17. The adoption of this standard had no material impact on our consolidated financial statements.

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

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(5)  Other Balance Sheet Information

Components of selected captions in the consolidated balance sheets consist of (in thousands):

 

     December 31,  
     2014
(Restated)
     2013  

Inventories, net:

     

Raw materials

   $ 122,886       $ 121,671   

Work-in-process

     82,724         79,559   

Finished goods

     159,555         164,037   
  

 

 

    

 

 

 
   $ 365,165       $ 365,267   
  

 

 

    

 

 

 

Property, plant and equipment, net:

     

Machinery, laboratory equipment and tooling

   $ 431,255       $ 418,416   

Land and buildings

     172,773         182,547   

Leasehold improvements

     55,788         53,488   

Computer software and equipment

     154,566         127,011   

Furniture and fixtures

     35,656         31,539   
  

 

 

    

 

 

 
     850,038         813,001   

Less: Accumulated depreciation

     (396,468      (346,504
  

 

 

    

 

 

 
   $ 453,570       $ 466,497   
  

 

 

    

 

 

 

Accrued expenses and other current liabilities:

     

Compensation and compensation-related

   $ 88,546       $ 87,437   

Royalty obligations

     23,072         25,321   

Deferred revenue

     22,479         20,686   

Income taxes payable and deferred tax liabilities

     32,922         25,088   

Other taxes payable

     31,491         18,185   

Acquisition-related obligations

     69,779         95,759   

Other

     107,205         109,418   
  

 

 

    

 

 

 
   $ 375,494       $ 381,894   
  

 

 

    

 

 

 

(6)   Business Combinations

Acquisitions are accounted for using the acquisition method and the acquired companies’ results have been included in the accompanying consolidated financial statements from their respective dates of acquisition. During 2014, 2013 and 2012, we recorded acquisition-related costs of $0.9 million, $3.1 million and $9.7 million, respectively, in general and administrative expense.

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

Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. The estimated useful lives of the individual categories of intangible assets were based on the nature of the applicable intangible asset and the expected future cash flows to be

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)   Business Combinations (Continued)

 

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.

(a)  Acquisitions in 2013

(i)  Epocal

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

(ii)  Other acquisitions in 2013

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)   Business Combinations (Continued)

 

Our consolidated statement of operations for the year ended December 31, 2013 included revenue totaling approximately $83.0 million related to these businesses. Goodwill has been recognized in the Mega Medika, Alere Health Services, Pantech, and Simplex acquisitions and amounted to approximately $2.4 million. The goodwill related to the Mega Medika and Simplex acquisitions is deductible for tax purposes, but the goodwill related to the Pantech and Alere Health Services acquisitions is not.

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

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

 

     Epocal      Other      Total  

Current assets(1)

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

Property, plant and equipment

     1,267         1,731         2,998   

Goodwill

     100,419         2,447         102,866   

Intangible assets

     164,400         51,180         215,580   

Other non-current assets

     18,158         29         18,187   
  

 

 

    

 

 

    

 

 

 

Total assets acquired

     296,779         69,010         365,789   
  

 

 

    

 

 

    

 

 

 

Current liabilities

     2,701         5,398         8,099   

Non-current liabilities

     45,542         6,062         51,604   
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     48,243         11,460         59,703   
  

 

 

    

 

 

    

 

 

 

Net assets acquired

     248,536         57,550         306,086   

Less:

        

Contingent consideration

     75,000         1,264         76,264   

Settlement of pre-existing arrangements

     22,088         17,500         39,588   

Non-controlling interest

             1,774         1,774   

Bargain purchase gain

             8,023         8,023   

Deferred purchase price consideration

             768         768   
  

 

 

    

 

 

    

 

 

 

Cash paid

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

 

 

    

 

 

    

 

 

 

 

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

 

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ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)   Business Combinations (Continued)

 

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

 

     Epocal      Other      Total      Weighted-
average
Useful Life
 

Core technology and patents

   $ 119,700       $       $ 119,700         20.0 years   

Software

             2,154         2,154         5.7 years   

Trademarks and trade names

     20,500         80         20,580         19.1 years   

License agreements

             620         620         1.5 years   

Customer relationships

             42,510         42,510         11.5 years   

Other

             5,816         5,816         3.0 years   

In-process research and development

     24,200                 24,200         N/A   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

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

 

 

    

 

 

    

 

 

    

(b)  Acquisitions in 2012

(i)  eScreen

On April 2, 2012, we acquired eScreen, Inc., or eScreen, headquartered in Overland Park, Kansas, a technology-enabled provider of employment drug screening solutions for hiring and maintaining healthier and more efficient workforces. The aggregate purchase price was approximately $295.0 million, which consisted of $271.4 million in cash and a contingent consideration obligation with an aggregate acquisition date fair value of $23.6 million. Included in our consolidated statements of operations for the year ended December 31, 2012 is revenue totaling approximately $116.7 million related to eScreen. The operating results of eScreen are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes.

(ii)  Other acquisitions in 2012

During 2012, we acquired the following businesses for an aggregate purchase price of $199.5 million, which included cash payments totaling $147.5 million and contingent consideration obligations with aggregate acquisition date fair values of $52.0 million.

 

   

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

 

   

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

 

   

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

 

   

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