Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2015

OR

 

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 001-16789

 

 

 

LOGO

ALERE INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   04-3565120

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices)(Zip code)

(781) 647-3900

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of July 30, 2015 was 85,728,535.

 

 

 


Table of Contents

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended June 30, 2015

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. A number of important factors could cause actual results of Alere Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in Part I, Item 1A, “Risk Factors,” of Amendment No. 2 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014 and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review these risk factors, and should not place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

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

TABLE OF CONTENTS

 

          PAGE  

PART I. FINANCIAL INFORMATION

     3   

Item 1.

   Financial Statements (unaudited)      3   
   a) Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014      3   
   b) Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014      4   
   c) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014      5   
   d) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014      6   
   e) Notes to Consolidated Financial Statements      7   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      51   

Item 4.

   Controls and Procedures      52   

PART II. OTHER INFORMATION

     53   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      53   

Item 6.

   Exhibits      54   

SIGNATURE

     55   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

Net product sales

   $ 496,834      $ 500,358      $ 976,433      $ 991,677   

Services revenue

     126,628        140,436        250,484        269,144   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     623,462        640,794        1,226,917        1,260,821   

License and royalty revenue

     5,694        6,604        10,392        11,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     629,156        647,398        1,237,309        1,272,637   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     258,485        271,687        497,122        514,668   

Cost of services revenue

     76,753        75,893        152,334        146,254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     335,238        347,580        649,456        660,922   

Cost of license and royalty revenue

     1,344        1,125        3,294        2,664   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     336,582        348,705        652,750        663,586   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     292,574        298,693        584,559        609,051   

Operating expenses:

        

Research and development

     27,198        37,430        55,214        76,129   

Sales and marketing

     107,184        135,801        216,263        268,845   

General and administrative

     60,813        130,573        153,504        234,192   

Impairment and (gain) loss on dispositions, net

     5,542        638        40,334        638   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     91,837        (5,749     119,244        29,247   

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

     (59,494     (52,034     (105,925     (103,944

Other income (expense), net

     4,260        3,219        2,990        10,251   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     36,603        (54,564     16,309        (64,446

Provision for income taxes

     17,701        5,464        8,915        3,784   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     18,902        (60,028     7,394        (68,230

Equity earnings of unconsolidated entities, net of tax

     1,361        2,087        5,320        7,439   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     20,263        (57,941     12,714        (60,791

Income from discontinued operations, net of tax

     —          12,915        216,777        10,319   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     20,263        (45,026     229,491        (50,472

Less: Net income attributable to non-controlling interests

     359        62        447        170   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     19,904        (45,088     229,044        (50,642

Preferred stock dividends

     (5,309     (5,309     (10,559     (10,559
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ 14,595      $ (50,397   $ 218,485      $ (61,201
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per common share:

        

Income (loss) from continuing operations

   $ 0.17      $ (0.77   $ 0.02      $ (0.87

Income from discontinued operations

     —          0.16        2.56        0.13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ 0.17      $ (0.61   $ 2.58      $ (0.74
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per common share:

        

Income (loss) from continuing operations

   $ 0.17      $ (0.77   $ 0.02      $ (0.87

Income from discontinued operations

     —          0.16        2.52        0.13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ 0.17      $ (0.61   $ 2.54      $ (0.74
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares — basic

     85,173        82,648        84,758        82,518   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares — diluted

     86,635        82,648        86,070        82,518   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

Net income (loss)

   $ 20,263      $ (45,026   $ 229,491      $ (50,472
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

        

Changes in cumulative translation adjustment

     46,726        37,815        (33,616     26,475   

Unrealized losses on available for sale securities

     —         —         —          (17 )

Unrealized gains on hedging instruments

     —          6       —          14   

Minimum pension liability adjustment

     (374     (87     (1,756     (13
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     46,352        37,734        (35,372     26,459   

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

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     46,352        37,734        (35,372     26,459   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     66,615        (7,292     194,119        (24,013

Less: Comprehensive income attributable to non-controlling interests

     359        62        447        170   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 66,256      $ (7,354   $ 193,672      $ (24,183
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

 

     June 30, 2015     December 31, 2014  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 464,871      $ 378,461   

Restricted cash

     461,636        37,571   

Marketable securities

     175        259   

Accounts receivable, net of allowances of $87,231 and $76,163 at June 30, 2015 and December 31, 2014, respectively

     472,686        466,106   

Inventories, net

     366,340        365,165   

Deferred tax assets

     18,385        112,573   

Prepaid expenses and other current assets

     125,559        132,413   

Assets held for sale – current

     28,631        315,515   
  

 

 

   

 

 

 

Total current assets

     1,938,283        1,808,063   

Property, plant and equipment, net

     448,302        453,570   

Goodwill

     2,853,551        2,926,666   

Other intangible assets with indefinite lives

     41,306        43,651   

Finite-lived intangible assets, net

     1,093,186        1,276,444   

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

     67,734        67,832   

Investments in unconsolidated entities

     69,594        91,693   

Deferred tax assets

     7,633        8,569   

Non-current income tax receivable

     2,611        2,468   

Assets held for sale – non-current

     129,194        —     
  

 

 

   

 

 

 

Total assets

   $ 6,651,394      $ 6,678,956   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

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

   $ 629,371      $ 88,875   

Current portion of capital lease obligations

     4,643        4,241   

Accounts payable

     186,941        213,592   

Accrued expenses and other current liabilities

     309,394        375,494   

Liabilities related to assets held for sale – current

     7,663        78,843   
  

 

 

   

 

 

 

Total current liabilities

     1,138,012        761,045   
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of current portion

     2,958,036        3,621,385   

Capital lease obligations, net of current portion

     6,913        10,560   

Deferred tax liabilities

     227,491        214,639   

Other long-term liabilities

     146,240        161,582   

Liabilities related to assets held for sale – non-current

     11,527        —     
  

 

 

   

 

 

 

Total long-term liabilities

     3,350,207        4,008,166   
  

 

 

   

 

 

 

Commitments and contingencies (Note 17)

    

Stockholders’ equity:

    

Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at June 30, 2015 and December 31, 2014); Authorized: 2,300 shares; Issued: 2,065 shares at June 30, 2015 and December 31, 2014; Outstanding: 1,774 shares at June 30, 2015 and December 31, 2014

     606,468        606,468   

Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 93,224 shares at June 30, 2015 and 91,532 shares at December 31, 2014; Outstanding: 85,545 shares at June 30, 2015 and 83,853 shares at December 31, 2014

     93        92   

Additional paid-in capital

     3,414,982        3,355,672   

Accumulated deficit

     (1,450,508     (1,679,552

Treasury stock, at cost, 7,679 shares at June 30, 2015 and December 31, 2014

     (184,971     (184,971

Accumulated other comprehensive loss

     (227,482     (192,110
  

 

 

   

 

 

 

Total stockholders’ equity

     2,158,582        1,905,599   

Non-controlling interests

     4,593        4,146   
  

 

 

   

 

 

 

Total equity

     2,163,175        1,909,745   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 6,651,394      $ 6,678,956   
  

 

 

   

 

 

 

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

 

5


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Six Months Ended June 30,  
     2015     2014  

Cash Flows from Operating Activities:

  

Net income (loss)

   $ 229,491      $ (50,472

Income from discontinued operations, net of tax

     216,777        10,319   
  

 

 

   

 

 

 

Income (loss) from continuing operations

     12,714        (60,791

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

    

Tax benefit related to discontinued operations

     —          2,990   

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

     7,784        7,926   

Depreciation and amortization

     147,011        167,639   

Non-cash stock-based compensation expense

     12,279        4,582   

Impairment of inventory

     68        589   

Impairment of long-lived assets

     387        1,491   

Loss on disposition of fixed assets

     3,318        3,265   

Equity earnings of unconsolidated entities, net of tax

     (5,320     (7,439

Gain on sales of marketable securities

     (8     —     

Deferred income taxes

     (40,655     (33,894

Loss related to impairment and net loss on dispositions

     40,334        638   

Loss on extinguishment of debt

     3,480        —     

Other non-cash items

     (2,332     (5,261

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

     (52,867     16,729   

Changes in assets and liabilities, net of acquisitions:

    

Accounts receivable, net

     (27,464     15,068   

Inventories, net

     (46,093     (15,329

Prepaid expenses and other current assets

     (27,077     663   

Accounts payable

     (23,251     30,437   

Accrued expenses and other current liabilities

     27,657        (3,769

Other non-current liabilities

     6,025        6,377   

Cash paid for contingent purchase price consideration

     (3,781     (20,205
  

 

 

   

 

 

 

Net cash provided by continuing operations

     32,209        111,706   

Net cash provided by discontinued operations

     318        13,398   
  

 

 

   

 

 

 

Net cash provided by operating activities

     32,527        125,104   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Increase in restricted cash

     (424,025     (4,034

Purchases of property, plant and equipment

     (47,284     (47,283

Proceeds from sale of property, plant and equipment

     1,120        493   

Cash received from dispositions, net of cash divested

     586,625        5,454   

Cash paid for business acquisitions, net of cash acquired

     —          (75

Cash received from equity method investments

     14,297        980   

Cash received from sales of marketable securities

     93        39   

Cash paid for investments

     —          (779

Decrease in other assets

     1,750        864   
  

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

     132,576        (44,341

Net cash used in discontinued operations

     (209     (6,769
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     132,367        (51,110
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash paid for financing costs

     (15,731     (5

Cash paid for contingent purchase price consideration

     (6,373     (15,619

Proceeds from issuance of common stock, net of issuance costs

     56,332        21,121   

Proceeds from issuance of long-term debt

     2,121,851        —     

Payments on short-term debt

     (584     —     

Payments on long-term debt

     (2,118,264     (31,727

Proceeds from issuance of short-term debt

     —          806  

Net (payments) proceeds under revolving credit facilities

     (126,320     111   

Cash paid for dividends

     (10,646     (10,646

Excess tax benefits on exercised stock options

     2,511        415   

Principal payments on capital lease obligations

     (2,910     (3,039
  

 

 

   

 

 

 

Net cash used in continuing operations

     (100,134     (38,583

Net cash used in discontinued operations

     (76     (167
  

 

 

   

 

 

 

Net cash used in financing activities

     (100,210     (38,750
  

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     (1,574     1,650   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     63,110        36,894   

Cash and cash equivalents, beginning of period – continuing operations

     378,461        355,431   

Cash and cash equivalents, beginning of period – discontinued operations

     23,300        6,476   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

     464,871        398,801   

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

     —         8,647   
  

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

   $ 464,871      $ 390,154   
  

 

 

   

 

 

 

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

 

6


Table of Contents

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation of Financial Information

The accompanying consolidated financial statements of Alere Inc. are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair statement. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows. Our audited consolidated financial statements for the year ended December 31, 2014 included information and footnotes necessary for such presentation and were included in Amendment No. 2 to our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission, or SEC, on May 28, 2015. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2014.

As a result of the sale of our health management business in January 2015, which was the largest component of our patient self-testing reporting segment, we no longer report our financial information in four operating segments. Our current reportable operating segments are professional diagnostics, consumer diagnostics and corporate and other. Financial information by segment for the three and six months ended June 30, 2014 has been retroactively adjusted to reflect this change in reporting segments.

Certain reclassifications of prior period amounts have been made in order to retrospectively present discontinued operations. These reclassifications have no effect on net income or equity.

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

(2) Revision of Previously Reported Amounts

During the financial closing process for the three months ended March 31, 2015, management determined that we had incorrectly accounted for income taxes related to discontinued operations during 2014, including in connection with the divestiture of our health management business completed in January 2015 and another divestiture completed in October 2014. As a result, we restated our financial statements for the three and nine months ended September 30, 2014 and for the year ended December 31, 2014. In connection with those restatements, we corrected additional errors in 2012, 2013 and 2014 that we concluded were not material, individually or in the aggregate, to our previously issued financial statements.

Although management has determined that the errors, individually and in the aggregate, are not material to prior periods, the financial statements for the three and six months ended June 30, 2014, included herein, have been adjusted to correct for the impact of these items. The adjustments recorded in connection with the revisions related to the six months ended June 30, 2014 primarily relate to a $4.6 million decrease in general and administrative expense related to a change in the fair value of our contingent consideration obligations and a $4.2 million adjustment to revise the benefit from certain foreign tax credits which increased the benefit for income taxes. The impacts of these revisions are shown in the tables below:

 

     Three Months Ended June 30, 2014  

Revised Consolidated Statement of Operations (in thousands,

except per share data)

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

Net product sales

   $ 500,118       $ 240       $ 500,358   

Net product sales and services revenue

   $ 640,554       $ 240       $ 640,794   

Net revenue

   $ 647,158       $ 240       $ 647,398   

Cost of net product sales

   $ 272,192       $ (505    $ 271,687   

Cost of service revenue

   $ 74,467       $ 1,426       $ 75,893   

Cost of net product sales and services revenue

   $ 346,659       $ 921       $ 347,580   

Cost of net revenue

   $ 347,784       $ 921       $ 348,705   

Gross profit

   $ 299,374       $ (681    $ 298,693   

General and administrative

   $ 131,748       $ (1,175    $ 130,573   

Operating loss

   $ (6,243    $ 494       $ (5,749

Other income (expense), net

   $ 3,131       $ 88       $ 3,219   

Loss from continuing operations before benefit for income taxes

   $ (55,146    $ 582       $ (54,564

 

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Table of Contents
     Three Months Ended June 30, 2014  
Revised Consolidated Statement of Operations (in thousands, except per
share data)
   As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
     Adjustment      As Revised  

Benefit for income taxes

   $ 5,454       $ 10       $ 5,464   

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

   $ (60,600    $ 572       $ (60,028

Loss from continuing operations

   $ (58,513    $ 572       $ (57,941

Net loss

   $ (45,598    $ 572       $ (45,026

Net loss attributable to Alere Inc. and Subsidiaries

   $ (45,660    $ 572       $ (45,088

Net loss available to common stockholders

   $ (50,969    $ 572       $ (50,397

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

   $ (0.77    $ —         $ (0.77

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

   $ (0.62    $ 0.01       $ (0.61
     Six Months Ended June 30, 2014  
Revised Consolidated Statement of Operations (in thousands, except per
share data)
   As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
     Adjustment      As Revised  

Net product sales

   $ 991,437       $ 240       $ 991,677   

Net product sales and services revenue

   $ 1,260,581       $ 240       $ 1,260,821   

Net revenue

   $ 1,272,397       $ 240       $ 1,272,637   

Cost of net product sales

   $ 515,718       $ (1,050    $ 514,668   

Cost of service revenue

   $ 143,364       $ 2,890       $ 146,254   

Cost of net product sales and services revenue

   $ 659,082       $ 1,840       $ 660,922   

Cost of net revenue

   $ 661,746       $ 1,840       $ 663,586   

Gross profit

   $ 610,651       $ (1,600    $ 609,051   

General and administrative

   $ 241,163       $ (6,971    $ 234,192   

Operating income

   $ 23,876       $ 5,371       $ 29,247   

Other income (expense), net

   $ 8,413       $ 1,838       $ 10,251   

Loss from continuing operations before benefit for income taxes

   $ (71,655    $ 7,209       $ (64,446

Benefit for income taxes

   $ 296       $ 3,488       $ 3,784   

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

   $ (71,951    $ 3,721       $ (68,230

Loss from continuing operations

   $ (64,512    $ 3,721       $ (60,791

Net loss

   $ (54,193    $ 3,721       $ (50,472

Net loss attributable to Alere Inc. and Subsidiaries

   $ (54,363    $ 3,721       $ (50,642

Net loss available to common stockholders

   $ (64,922    $ 3,721       $ (61,201

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

   $ (0.91    $ 0.04       $ (0.87

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

   $ (0.79    $ 0.05       $ (0.74

 

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     Three Months Ended June 30, 2014  
Revised Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
     Adjustment      As Revised  

Net loss

   $ (45,598    $ 572       $ (45,026

Comprehensive loss

   $ (7,864    $ 572       $ (7,292

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (7,926    $ 572       $ (7,354
     Six Months Ended June 30, 2014  
Revised Consolidated Statement of Comprehensive Loss (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
     Adjustment      As Revised  

Net loss

   $ (54,193    $ 3,721       $ (50,472

Comprehensive loss

   $ (27,734    $ 3,721       $ (24,013

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (27,904    $ 3,721       $ (24,183
     Six Months Ended June 30, 2014  
Revised Consolidated Statement of Cash Flows (in thousands)    As Previously Reported,
Giving Effect to the
Impact of Discontinued
Operations
     Adjustment      As Revised  

Net loss

   $ (54,193    $ 3,721       $ (50,472

Loss from continuing operations

   $ (64,512    $ (3,721    $ (60,791

Deferred income taxes

   $ (36,524    $ 2,630       $ (33,894

Accounts receivable, net

   $ 15,308       $ (240    $ 15,068   

Prepaid expenses and other current assets

   $ 2,501       $ (1,838    $ 663   

Accrued expenses and other current liabilities

   $ (2,379    $ (1,390    $ (3,769

Other non-current liabilities

   $ 4,723       $ 1,654       $ 6,377   

Non-cash change in fair value of contingent consideration

   $ 21,329       $ (4,600    $ 16,729   

Net cash provided by continuing operations

   $ 111,769       $ (63    $ 111,706   

Net cash provided by operating activities

   $ 125,167       $ (63    $ 125,104   

Purchases of property, plant and equipment

   $ (47,346    $ 63       $ (47,283

Net cash used in continuing operations

   $ (44,404    $ 63       $ (44,341

Net cash used in investing activities

   $ (51,173    $ 63       $ (51,110

The Company has reflected these revisions as applicable in its consolidated financial statements and also in the consolidating financial statements presented in Note 23.

(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 prior to the sale. 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.

 

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We accounted for our divestiture of the health management business in accordance with Accounting Standards Update, or ASU, No. 2014-08. 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 sheet as of December 31, 2014 (in thousands):

 

     December 31, 2014  

Assets

  

Cash and cash equivalents

   $ 23,300   

Restricted cash

     361   

Accounts receivable, net of allowances of $5,882 at December 31, 2014

     50,902   

Inventories, net

     1,656   

Deferred tax assets – current

     6,939   

Prepaid expenses and other current assets

     3,857   

Property, plant and equipment, net

     57,595   

Goodwill

     82,665   

Finite-lived intangible assets, net

     82,428   

Deferred tax assets – non-current

     3,347   

Other non-current assets

     2,465   
  

 

 

 

Total assets held for sale

   $ 315,515   
  

 

 

 

Liabilities

  

Current portion of capital lease obligations

   $ 799   

Accounts payable

     5,654   

Accrued expenses and other current liabilities

     32,822   

Capital lease obligations, net of current portion

     365   

Deferred tax liabilities – non-current

     27,453   

Other long-term liabilities

     11,750   
  

 

 

 

Total liabilities related to assets held for sale

   $ 78,843   
  

 

 

 

The following summarized financial information related to the businesses of the ACS Companies and the health management business has been segregated from continuing operations and has been reported as discontinued operations in our consolidated statements of operations. The results of the health management business are included in the six months ended June 30, 2015, given our January 9, 2015 divestiture of this business. The results of the ACS Companies are included in the three and six months ended June 30, 2014, given our October 31, 2014 divestiture of this business. The results are as follows (in thousands):

 

     Three Months
Ended June 30,
     Six Months Ended June 30,  
     2014      2015      2014  

Net revenue

   $ 90,785       $ 7,373       $ 182,168   

Cost of net revenue

     (50,240      (4,413      (101,660

Sales and marketing

     (14,862      (996      (28,882

General and administrative

     (28,198      (5,001      (58,318

Interest expense

     (117      (9      (253

Other income (expense), net

     (511      160         (1,070

Gain on disposal

     —          366,191         —    
  

 

 

    

 

 

    

 

 

 

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

     (3,143      363,305         (8,015

Provision (benefit) for income taxes

     (16,058      146,528         (18,334
  

 

 

    

 

 

    

 

 

 

Income from discontinued operations, net of tax

   $ 12,915       $ 216,777       $ 10,319   
  

 

 

    

 

 

    

 

 

 

 

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(4) Cash and Cash Equivalents

We consider all highly-liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At June 30, 2015, our cash equivalents consisted of money market funds.

(5) Restricted Cash

We had restricted cash of $461.6 million and $37.6 million as of June 30, 2015 and December 31, 2014, respectively. Of the $461.6 million as of June 30, 2015, $425.9 million relates to a deposit of funds with a trustee in connection with the satisfaction and discharge of our obligations associated with the October 1, 2015 scheduled redemption of our 8.625% senior subordinated notes due 2018, or the 8.625% notes.

(6) Inventories

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

 

     June 30, 2015      December 31, 2014  

Raw materials

   $ 131,213       $ 122,886   

Work-in-process

     66,360         82,724   

Finished goods

     168,767         159,555   
  

 

 

    

 

 

 
   $ 366,340       $ 365,165   
  

 

 

    

 

 

 

(7) Stock-based Compensation

We recorded stock-based compensation expense in our consolidated statements of operations for the three and six months ended June 30, 2015 and 2014, respectively, as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Cost of net revenue

   $ 287       $ 285       $ 540       $ 572   

Research and development

     282         (1,811      606         (620

Sales and marketing

     1,251         967         2,345         1,858   

General and administrative

     5,310         (563      8,788         2,772   
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,130         (1,122      12,279         4,582   

Provision (benefit) for income taxes

     (2,529      655         (4,902      (1,123
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,601       $ (467    $ 7,377       $ 3,459   
  

 

 

    

 

 

    

 

 

    

 

 

 

(8) Net Income (Loss) per Common Share

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

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

           

Numerator:

           

Income (loss) from continuing operations

   $ 20,263       $ (57,941    $ 12,714       $ (60,791

Preferred stock dividends

     (5,309      (5,309      (10,559      (10,559
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations attributable to common shares

     14,954         (63,250      2,155         (71,350

Less: Net income attributable to non-controlling interest

     359         62         447         170   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     14,595         (63,312      1,708         (71,520

Income from discontinued operations

     —           12,915         216,777         10,319   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common stockholders

   $ 14,595       $ (50,397    $ 218,485       $ (61,201
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Denominator:

           

Weighted-average common shares outstanding — basic

     85,173         82,648         84,758         82,518   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding — diluted

     86,635         82,648         86,070         82,518   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income (loss) per common share:

           

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

   $ 0.17       $ (0.77    $ 0.02       $ (0.87

Income from discontinued operations

     —           0.16         2.56         0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income (loss) per common share

   $ 0.17       $ (0.61    $ 2.58       $ (0.74
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income (loss) per common share:

           

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

   $ 0.17       $ (0.77    $ 0.02       $ (0.87

Income from discontinued operations

     —           0.16         2.52         0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income (loss) per common share

   $ 0.17       $ (0.61    $ 2.54       $ (0.74
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Denominator:

           

Options to purchase shares of common stock

     7,627         9,380         7,627         9,380   

Warrants

     —           4         4         4   

Conversion shares related to 3% convertible senior subordinated notes

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

Conversion shares related to subordinated convertible promissory notes

     27         27         27         27   

Conversion shares related to Series B convertible preferred stock

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

Common stock equivalents related to the settlement of a contingent consideration obligation

     —           335         —           347   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     21,304         23,396         21,308         23,408   
  

 

 

    

 

 

    

 

 

    

 

 

 

(9) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

For the three and six months ended June 30, 2015, Series B preferred stock dividends amounted to $5.3 million and $10.6 million, respectively, and for the three and six months ended June 30, 2014, Series B preferred stock dividends amounted to $5.3 million and $10.6 million, respectively, which reduced earnings available to common stockholders for purposes of calculating net income (loss) per common share for each of the respective periods. As of June 30, 2015, $5.3 million of Series B preferred stock dividends was accrued. As of July 15, 2015, payments have been made covering all dividend periods through June 30, 2015.

The Series B preferred stock dividends for the three and six months ended June 30, 2015 and 2014 were paid in cash.

 

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Table of Contents

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

A summary of the changes in stockholders’ equity and non-controlling interests comprising total equity for the six months ended June 30, 2015 and 2014 is provided below (in thousands):

 

     Six Months Ended June 30,  
     2015     2014  
     Total
Stockholders’
Equity
    Non-
controlling
Interests
     Total
Equity
    Total
Stockholders’
Equity
    Non-
controlling
Interests
     Total
Equity
 

Equity, beginning of period

   $ 1,905,599      $ 4,146       $ 1,909,745      $ 2,073,256      $ 4,882       $ 2,078,138   

Issuance of common stock under employee compensation plans

     56,332        —          56,332        21,121        —          21,121   

Preferred stock dividends

     (10,646     —          (10,646     (10,646     —          (10,646

Stock-based compensation expense

     12,279        —          12,279        4,582        —          4,582   

Excess tax benefits on exercised stock options

     1,346        —          1,346        124        —          124   

Net income (loss)

     229,044        447         229,491        (50,642     170         (50,472

Total other comprehensive income (loss)

     (35,372     —          (35,372     26,459               26,459   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Equity, end of period

   $ 2,158,582      $ 4,593       $ 2,163,175      $ 2,064,254      $ 5,052       $ 2,069,306   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

(10) Restructuring Plans

The following table sets forth aggregate restructuring charges recorded in our consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (in thousands):

 

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

Statement of Operations Caption

   2015      2014      2015      2014  

Cost of net revenue

   $ 896       $ 220       $ 2,399       $ 1,053   

Research and development

     156         3,031         649         3,031   

Sales and marketing

     570         4,851         1,953         6,401   

General and administrative

     3,231         7,278         4,122         9,293   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     4,853         15,380         9,123         19,778   

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

     6         11         13         23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 4,859       $ 15,391       $ 9,136       $ 19,801   
  

 

 

    

 

 

    

 

 

    

 

 

 

(a) 2014 Restructuring Plans

In 2014, management developed world-wide cost reduction plans to reduce costs and improve operational efficiencies within our professional diagnostics and corporate and other business segments, primarily impacting our global sales and marketing, information technology and research and development groups, as well as closing certain business locations in Europe and Asia. The following table summarizes the restructuring activities related to our 2014 restructuring plans for the three and six months ended June 30, 2015 and 2014 and since inception of these restructuring plans (in thousands):

 

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

Professional Diagnostics

   2015      2014      2015      2014         

Severance-related costs

   $ 1,264       $ 9,732       $ 4,064       $ 12,096       $ 31,870   

Facility and transition costs

     1,487         147         2,913         181         6,373   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     2,751         9,879         6,977         12,277         38,243   

Fixed asset and inventory impairments

     445        1,330        454        2,080        11,406   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 3,196       $ 11,209       $ 7,431       $ 14,357       $ 49,649   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Corporate and Other

   2015     2014      2015     2014         

Severance-related costs

   $ 569      $ 2,113       $ 611      $ 2,200       $ 3,512   

Facility and transition costs

     (6     1,942         (13     1,950         11,322   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total cash charges

   $ 563      $ 4,055       $ 598      $ 4,150       $ 14,834   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

We anticipate incurring approximately $4.4 million in additional costs under our 2014 restructuring plans related to our professional diagnostics business segment, primarily related to the closure of our manufacturing facility in Israel. We may develop additional restructuring plans over the remainder of 2015. As of June 30, 2015, $4.5 million in severance and transition costs arising under our 2014 restructuring plans remain unpaid.

(b) Restructuring Plans Prior to 2014

In 2013, management developed cost reduction plans within our professional diagnostics segment impacting businesses in our United States, Europe and Asia Pacific regions. In 2011, management developed plans to consolidate operating activities among certain of our United States, European and Asia Pacific subsidiaries, including transferring the manufacturing of our Panbio products from Australia to our Standard Diagnostics facility in South Korea and eliminating redundant costs among our newly-acquired Axis-Shield subsidiaries. Additionally, in 2008, management developed and initiated plans to transition the Cholestech business to our San Diego, California facility.

The following table summarizes the restructuring activities within our professional diagnostics business segment related to our active 2013, 2011and 2008 restructuring plans for the three and six months ended June 30, 2015 and 2014 and since inception of these plans (in thousands):

 

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

Professional Diagnostics

   2015      2014      2015      2014         

Severance-related costs

   $ —         $ 39       $       $ 936       $ 26,926   

Facility and transition costs

     1,094         76         1,094         335         11,574   

Other exit costs

     6         11         13         23         811   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     1,100         126         1,107         1,294         39,311   

Fixed asset and inventory impairments

     —          —          —          —          6,776   

Intangible asset impairments

     —          —          —          —          686   

Other non-cash charges

     —          —          —          —          64   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 1,100       $ 126       $ 1,107       $ 1,294       $ 46,837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We do not anticipate incurring significant additional costs under these plans related to our professional diagnostics business segment. As of June 30, 2015, $1.3 million in cash charges remain unpaid under our restructuring plans prior to 2014, primarily related to facility lease obligations, which are anticipated to continue through 2020.

 

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(c) Restructuring Reserves

The following table summarizes our restructuring reserves related to the restructuring plans described above, of which $4.9 million is included in accrued expenses and other current liabilities and $0.8 million is included in other long-term liabilities on our consolidated balance sheets (in thousands):

 

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

Balance, December 31, 2014

   $ 4,590       $ 9,868       $ 290       $ 14,748   

Cash charges

     4,537         3,913         13         8,463   

Payments

     (7,134      (9,993      (63      (17,190

Currency adjustments

     (169      (159      —          (328
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, June 30, 2015

   $ 1,824       $ 3,629       $ 240       $ 5,693   
  

 

 

    

 

 

    

 

 

    

 

 

 

(11) Debt

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

 

     June 30, 2015      December 31, 2014  

A term loans(1)

   $ 646,775       $ —     

B term loans(1)

     1,047,386         —     

Prior credit facility—A term loans(2)(4)

     —           785,938   

Prior credit facility—B term loans(3)(4)

     —           1,330,810   

Prior credit facility—Revolving loans(4)

     —           127,000   

7.25% Senior notes

     450,000         450,000   

6.5% Senior subordinated notes

     425,000         425,000   

6.375% Senior subordinated notes

     425,000         —     

8.625% Senior subordinated notes

     400,000         400,000   

3% Convertible senior subordinated notes

     150,000         150,000   

Other lines of credit

     1,336         684   

Other

     41,910         40,828   
  

 

 

    

 

 

 
     3,587,407         3,710,260   

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

     (629,371      (88,875
  

 

 

    

 

 

 

Long-term debt

   $ 2,958,036       $ 3,621,385   
  

 

 

    

 

 

 

 

(1) Incurred under our secured credit facility entered into on June 18, 2015.
(2) Includes “A” term loans and “Delayed Draw” term loans under our prior credit facility.
(3)  Includes term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans under our prior credit facility, which term loans had been converted into and consolidated with the “B” term loans under our prior credit facility.
(4)  On May 15, 2015, we incurred an event of default under our prior credit facility as a result of our failure to timely deliver certain financial statements to our lenders thereunder. The event of default was subsequently cured and our prior credit facility was subsequently refinanced with our secured credit facility, so such event of default was not in existence on June 30, 2015.

 

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In connection with our debt issuances, we recorded interest expense, including amortization and write-offs of deferred financing costs and original issue discounts, in our consolidated statements of operations for the three-month and six-month periods ended June 30, 2015 and 2014, respectively, as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Secured credit facility (1)

   $ 12,851       $ —         $ 12,851       $ —     

Prior credit facility (2) (3)

     19,726         24,859         39,188         49,621   

7.25% Senior notes

     8,525         8,524         17,049         17,049   

6.5% Senior subordinated notes

     7,234         7,176         14,467         14,354   

6.375% Senior subordinated notes

     542         —           542         —     

8.625% Senior subordinated notes

     9,274         9,275         18,547         18,548   

3% Senior subordinated convertible notes

     1,246         1,246         2,492         2,492   

Other

     96         954         789         1,880   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 59,494       $ 52,034       $ 105,925       $ 103,944   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes “A” term loans, “B” term loans and revolving line of credit loans.
(2)  Includes the following loans under our prior credit facility: “A” term loans, including the “Delayed-Draw” term loans; “B” term loans, including the term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans and later converted into and consolidated with the “B” term loans; and revolving line of credit loans. For the three and six months ended June 30, 2015, the amounts include $0.3 million and $0.7 million, respectively, related to the amortization of fees paid for certain debt modifications. For the three and six months ended June 30, 2014, the amounts include $0.3 million and $0.7 million, respectively, related to the amortization of fees paid for certain debt modifications.
(3)  Includes a $3.5 million loss on extinguishment of debt associated with our prior credit facility.

(a) Secured Credit Facility

On June 18, 2015, we entered into a Credit Agreement, or secured credit facility, with certain lenders, Goldman Sachs Bank USA, as B term loan administrative agent, General Electric Capital Corporation as pro rata administrative agent and collateral agent, and certain other agents and arrangers, and, along with certain of our subsidiaries, a related guaranty and security agreement. The secured credit facility provides for (i) term loans in the aggregate amount of $1.7 billion (consisting of “A” term loans in the aggregate principal amount of $650.0 million and “B” term loans in the aggregate principal amount of $1,050.0 million), all of which were drawn at closing, and (ii) subject to our continued compliance with the terms of the secured credit facility, a $250.0 million revolving line of credit (which revolving line of credit includes a $50.0 million sublimit for the issuance of letters of credit); no amount was drawn under the revolving credit facility at closing.

We used approximately $1.68 billion of the proceeds of the term loans drawn at closing (i) to repay in full all indebtedness outstanding under our prior credit facility, whereupon such agreement was terminated (as described below), and (ii) to pay various fees and expenses associated with the transactions contemplated by the secured credit facility. Subject to certain limits and restrictions, we may use the remaining proceeds of the term loans, the proceeds of any revolving credit loans and the proceeds of any incremental term loans (described below) or incremental revolving credit commitments (described below) to finance permitted acquisitions, to finance capital expenditures, to provide working capital and for other general corporate purposes.

We must repay the “A” term loans in nineteen consecutive quarterly installments, beginning on September 30, 2015 and continuing through March 31, 2020, in the principal amount of $8,125,000 each, followed by a final installment on June 18, 2020, in the principal amount of $495,625,000. We must repay the “B” term loans in twenty-seven consecutive quarterly installments, beginning on September 30, 2015 and continuing through March 31, 2022, in the principal amount of $2,625,000 each, and a final installment on June 18, 2022, in the principal amount of $979,125,000. We may repay any future borrowings under the secured credit facility revolving line of credit at any time (without premium or penalty), but in no event later than June 18, 2020.

We are required to make mandatory prepayments of the term loans and mandatory prepayments of any revolving credit loans in various amounts if we have Excess Cash Flow (as defined in the Credit Agreement, and commencing in respect of our fiscal year ending December 31, 2016), if we issue certain types of debt, if we make certain sales of assets outside the ordinary course of business above certain thresholds or if we suffer certain property loss events above certain thresholds. We may make optional prepayments of the term loans from time to time without any premium or penalty, subject to a customary 101% “soft call” protection with respect to certain prepayments or a repricing event with respect to the “B” term loans occurring on or before December 18, 2015.

 

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The “A” term loans and any borrowings under the revolving credit facility bear interest at a rate per annum of, at our option, either (i) the Base Rate, as defined in the Credit Agreement, plus an applicable margin of 2.00%, or (ii) the Eurodollar Rate, as defined in the Credit Agreement, plus an applicable margin of 3.00%. The “B” term loans bear interest at a rate per annum of, at our option, either (i) the Base Rate plus an applicable margin of 2.00% or 2.25% depending on our consolidated secured net leverage ratio, or (ii) the Eurodollar Rate plus an applicable margin of 3.00% or 3.25% depending on our consolidated secured net leverage ratio. The Eurodollar Rate is subject to a 1.00% floor with respect to “B” term loans based on the Eurodollar Rate. We are required to pay a fee on the unused portion of the revolving credit facility at a rate per annum equal to 0.50%. As of June 30, 2015, the “A” term loans and the “B” term loans bore interest at 3.19% and 4.25%, respectively. As of June 30, 2015, there were no borrowings under the revolving line of credit under the secured credit facility.

Subject to our pro forma compliance with certain financial tests and certain other terms and conditions set forth in the Credit Agreement, we may request at any time that the lenders under the Credit Agreement and/or other financial institutions that become lenders thereunder make incremental term loans or provide incremental revolving credit commitments under the Credit Agreement in addition to the committed credit facilities described above, subject to our obtaining the agreement of the relevant new or existing lender, as the case may be. The Credit Agreement also includes (i) certain provisions that allow us to add one or more new term loan facilities or new revolving credit facilities in order to refinance all or a portion of the term loans or revolving credit commitments and (ii) certain “amend and extend” provisions that allow us to extend the maturity date of any term loans or revolving credit commitments (and make related changes to the terms of the relevant loans), subject in each case to our obtaining the agreement of the relevant new or existing lenders, as the case may be.

We must comply with various financial and non-financial covenants under the terms of the secured credit facility, which are set forth in the Credit Agreement. The primary financial covenant under the security credit facility consists of a maximum consolidated secured net leverage ratio applicable only to the “A” term loans and the revolving credit loans. The non-financial covenants are subject to certain important exceptions and qualifications.

The lenders under the secured credit facility are entitled to accelerate repayment of the loans and terminate the revolving credit commitments thereunder upon the occurrence of any of various events of default.

Borrowings under the secured credit facility are guaranteed by substantially all of our domestic subsidiaries (other than unrestricted subsidiaries and domestic subsidiaries of certain of our foreign subsidiaries) and are secured by the stock of substantially all of our domestic subsidiaries (other than unrestricted subsidiaries and domestic subsidiaries of certain of our foreign subsidiaries), portions of the stock of certain of our foreign subsidiaries, and substantially all of our and our guarantor subsidiaries’ other property and assets, in each case subject to various exceptions.

As of June 30, 2015, aggregate borrowings under the secured credit facility amounted to $1.7 billion, consisting of “A” term loans in the aggregate principal amount of $650.0 million and “B” term loans in the aggregate principal amount of $1,050.0 million. As of June 30, 2015, we were in compliance with the maximum consolidated secured net leverage ratio under the secured credit facility.

(b) Prior Credit Facility

In connection with entering into the secured credit facility on June 18, 2015, we repaid in full all outstanding indebtedness under and terminated our prior Credit Agreement, or prior credit facility, dated as of June 30, 2011, as amended from time to time, with certain lenders, General Electric Capital Corporation as administrative agent and collateral agent, and certain other agents and arrangers, and certain related guaranty and security agreements. The aggregate outstanding principal amount of the loans repaid under our prior credit facility in connection with the termination thereof was approximately $1.65 billion. We assessed this repayment on a lender-by-lender basis in order to differentiate the portion constituting an extinguishment and the portion constituting a modification. Unamortized deferred financing fees relating to the extinguished portion of the prior credit facility debt were expensed, and the portion relating to modifications of the prior credit facility debt were carried forward to be amortized over the contractual life of the new secured credit facility.

(c) 6.375% Senior Subordinated Notes

On June 24, 2015, we sold a total of $425.0 million aggregate principal amount of 6.375% senior subordinated notes due 2023, or the 6.375% senior subordinated notes, in a private placement to initial purchasers, who agreed to resell the notes only to qualified institutional buyers and to persons outside the United States; we sold the 6.375% senior subordinated notes at an initial offering price of 100%. Net proceeds from this offering amounted to $417.3 million, which were net of the initial purchasers’ discount and offering expenses totaling approximately $7.7 million.

The 6.375% senior subordinated notes were issued under a supplemental indenture dated June 24, 2015, or the 6.375% Indenture. The 6.375% senior subordinated notes accrue interest at the rate of 6.375% per annum. Interest on the 6.375% senior subordinated notes is payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2016. The 6.375% senior subordinated notes mature on July 1, 2023, unless earlier redeemed.

 

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We may, at our option, redeem the 6.375% senior subordinated notes, in whole or part, at any time (which may be more than once) on or after July 1, 2018 by paying the principal amount of the notes being redeemed plus a declining premium, plus accrued and unpaid interest to (but excluding) the redemption date. The premium declines from 4.781% during the twelve months on and after July 1, 2018, to 3.188% during the twelve months on and after July 1, 2019, to 1.594% during the twelve months on and after July 1, 2020, to zero on and after July 1, 2021. In addition, at any time (which may be more than once) prior to July 1, 2018, we may, at our option, redeem up to 35% of the aggregate principal amount of the 6.375% senior subordinated notes with money that we raise in certain qualifying equity offerings, so long as (i) we pay 106.375% of the principal amount of the notes being redeemed, plus accrued and unpaid interest to (but excluding) the redemption date; (ii) we redeem the 6.375% senior subordinated notes within 90 days of completing such equity offering; and (iii) at least 65% of the aggregate principal amount of the 6.375% senior subordinated notes remains outstanding afterwards. In addition, at any time (which may be more than once) prior to July 1, 2018, we may, at our option, redeem some or all of the 6.375% senior subordinated notes by paying the principal amount of the 6.375% senior subordinated notes being redeemed plus a make-whole premium, plus accrued and unpaid interest to (but excluding) the redemption date.

If a change of control occurs, subject to specified conditions, we must give holders of the 6.375% senior subordinated notes an opportunity to sell their notes to us at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest to (but excluding) the date of the purchase.

If we or our restricted subsidiaries engage in asset sales, we or they generally must either invest the net cash proceeds from such sales in our or their businesses within a specified period of time, repay senior indebtedness or make an offer to purchase a principal amount of the 6.375% senior subordinated notes equal to the excess net cash proceeds, subject to certain exceptions. The purchase price of the 6.375% senior subordinated notes would be 100% of their principal amount, plus accrued and unpaid interest.

The 6.375% Indenture provides that we and our restricted subsidiaries must comply with various covenants, which are subject to certain important exceptions and qualifications, which are set forth in the 6.375% Indenture. At any time the 6.375% senior subordinated notes are rated investment grade, certain covenants will be suspended with respect to them.

The 6.375% Indenture contains events of default entitling the trustee or the holders of the 6.375% senior subordinated notes to declare all amounts owed pursuant to the 6.375% senior subordinated notes immediately payable if any such event of default occurs.

The 6.375% senior subordinated notes are our senior subordinated unsecured obligations, are subordinated in right of payment to all of our existing and future senior debt, including our borrowings under our secured credit facility and our 7.25% senior notes, and are equal in right of payment with all of our existing and future senior subordinated debt, including our 8.625% senior subordinated notes (our obligations in respect of which have been satisfied and discharged, as described below), our 6.5% senior subordinated notes and our 3% convertible senior subordinated notes. Our obligations under the 6.375% senior subordinated notes and the 6.375% Indenture are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated unsecured basis by certain of our domestic subsidiaries, and the obligations of such domestic subsidiaries under their guarantees are subordinated in right of payment to all of their existing and future senior debt and equal in right of payment to all of their existing and future senior subordinated debt. See Note 23 for guarantor financial information.

(d) 8.625% Senior Subordinated Notes

On June 24, 2015, we issued a notice of optional redemption to the holders of 8.625% notes that, on October 1, 2015 (the redemption date), we will redeem the entire principal amount of the 8.625% notes then outstanding at a redemption price equal to 102.156% of the principal amount of the 8.625% notes to be redeemed plus accrued and unpaid interest from April 1, 2015 to (but excluding) the redemption date, upon the terms set forth in the notice of optional redemption. The balance of the 8.625% notes is included in the short-term debt and current portion of long-term debt on our consolidated balance sheet as of June 30, 2015 as the redemption notice creates an obligation to pay the balance on October 1, 2015. We transferred the net proceeds received from the 6.375% notes of $417.3 million and additional cash of $8.6 million, or a total of $425.9 million, into an irrevocable trust, which will be used to fund the redemption of the 8.625% notes on October 1, 2015. The $425.9 million is classified on our consolidated balance sheet as of June 30, 2015 as restricted cash. We exercised our right immediately to satisfy and discharge all of our obligations with respect to the 8.625% notes, subject to settlement of the redemption on the redemption date.

(12) Fair Value Measurements

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

 

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

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

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

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

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

Description

   June 30,
2015
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 175       $ 175       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 175       $ 175       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 72,907       $ —        $ —        $ 72,907   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 72,907       $ —        $ —        $ 72,907   
  

 

 

    

 

 

    

 

 

    

 

 

 

Description

   December 31,
2014
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 259       $ 259       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 259       $ 259       $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 139,671       $ —        $ —        $ 139,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 139,671       $ —        $ —        $ 139,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Changes in the fair value of our Level 3 contingent consideration obligations during the six months ended June 30, 2015 were as follows (in thousands):

 

Fair value of contingent consideration obligations, December 31, 2014

   $ 139,671   

Payments

     (11,651

Present value accretion and adjustments

     (55,125

Foreign currency adjustments

     12   
  

 

 

 

Fair value of contingent consideration obligations, June 30, 2015

   $ 72,907   
  

 

 

 

 

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At June 30, 2015 and December 31, 2014, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable and other current liabilities approximated their estimated fair values.

The carrying amount and estimated fair value of our debt were both $3.6 billion at June 30, 2015. The carrying amount and estimated fair value of our debt were both $3.7 billion at December 31, 2014. The estimated fair value of our debt was determined using market sources that were derived from available market information (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future.

(13) Defined Benefit Pension Plan

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Service cost

   $ —        $ —        $ —        $ —    

Interest cost

     231         203         460         402   

Expected return on plan assets

     (237      (192      (472      (380

Amortization of prior service costs

     339         112         675         222   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 333       $ 123       $ 663       $ 244   
  

 

 

    

 

 

    

 

 

    

 

 

 

(14) Financial Information by Segment

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the chief executive officer and members of senior management. As a result of the sale of our health management business in January 2015, which was the largest component of our patient self-testing reporting segment, we no longer report our financial information in four operating segments. Our current reportable operating segments are professional diagnostics, consumer diagnostics, and corporate and other. The information below for the three and six months ended June 30, 2014 has been retroactively adjusted to reflect this change in reporting segments. Our operating results include license and royalty revenue which are allocated to professional diagnostics and consumer diagnostics on the basis of the original license or royalty agreement. We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three and six months ended June 30, 2015 and 2014 and as of June 30, 2015 and December 31, 2014 is as follows (in thousands):

 

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     Professional
Diagnostics
     Consumer
Diagnostics
     Corporate
and
Other
     Total  

Three Months Ended June 30, 2015:

           

Net revenue

   $ 604,511       $ 24,645       $ —        $ 629,156   

Operating income (loss)

   $ 115,302       $ 1,079       $ (24,544    $ 91,837   

Impairment and (gain) loss on dispositions, net

   $ 5,542       $ —         $ —         $ 5,542   

Depreciation and amortization

   $ 70,143       $ 725       $ 1,775       $ 72,643   

Restructuring charge

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

Stock-based compensation

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

Three Months Ended June 30, 2014:

           

Net revenue

   $ 625,680       $ 21,718       $ —        $ 647,398   

Operating income (loss)

   $ 13,145       $ 2,012       $ (20,906    $ (5,749

Impairment and (gain) loss on dispositions, net

   $ 638       $ —         $       $ 638   

Depreciation and amortization

   $ 82,206       $ 703       $ 910       $ 83,819   

Restructuring charge

   $ 11,325       $ —        $ 4,055       $ 15,380   

Stock-based compensation

   $ —         $ —        $ (1,122    $ (1,122

Six Months Ended June 30, 2015:

           

Net revenue

   $ 1,190,696       $ 46,613       $ —        $ 1,237,309   

Operating income (loss)

   $ 165,092       $ 3,283       $ (49,131    $ 119,244   

Impairment and (gain) loss on dispositions, net

   $ 40,334       $ —         $ —         $ 40,334   

Depreciation and amortization

   $ 142,566       $ 1,436       $ 3,009       $ 147,011   

Restructuring charge

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

Stock-based compensation

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

Six Months Ended June 30, 2014:

           

Net revenue

   $ 1,228,617       $ 44,020       $ —        $ 1,272,637   

Operating income (loss)

   $ 68,623       $ 2,711       $ (42,087    $ 29,247   

Impairment and (gain) loss on dispositions, net

   $ 638       $ —         $ —         $ 638   

Depreciation and amortization

   $ 164,612       $ 1,483       $ 1,544       $ 167,639   

Restructuring charge

   $ 15,628       $ —        $ 4,150       $ 19,778   

Stock-based compensation

   $ —         $ —        $ 4,582       $ 4,582   

Assets:

           

As of June 30, 2015

   $ 5,903,150       $ 211,812       $ 536,432       $ 6,651,394   

As of December 31, 2014

   $ 6,323,944       $ 216,451       $ 138,561       $ 6,678,956   

The following tables summarize our net revenue from the professional diagnostics reporting segments by groups of similar products and services for the three and six months ended June 30, 2015 and 2014 (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  

Cardiometabolic

   $ 213,661       $ 209,241       $ 416,504       $ 423,204   

Infectious disease

     176,630         175,001         355,386         342,614   

Toxicology

     157,495         169,647         306,251         325,180   

Other

     51,031         65,187         102,163         125,803   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total professional diagnostics net product sales and services revenue

     598,817         619,076         1,180,304         1,216,801   

License and royalty revenue

     5,694         6,604         10,392         11,816   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total professional diagnostics net revenue

   $ 604,511       $ 625,680       $ 1,190,696       $ 1,228,617   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(15) Related Party Transactions

(a) SPD Joint Venture

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

We had a net payable to SPD of $2.0 million as of June 30, 2015 and a net payable to SPD of $4.0 million as of December 31, 2014. Included in the $2.0 million payable balance as of June 30, 2015 and the $4.0 million payable balance as of December 31, 2014 is approximately $1.6 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $9.4 million and $10.9 million as of June 30, 2015 and December 31, 2014, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the formation of the joint venture have been classified as other receivables within prepaid and other current assets on our consolidated balance sheets in the amount of $8.4 million and $9.6 million as of June 30, 2015 and December 31, 2014, respectively. In connection with the joint venture arrangement, the joint venture bears the collection risk associated with these receivables. Sales to the joint venture under our manufacturing agreement totaled $21.7 million and $41.2 million during the three and six months ended June 30, 2015, respectively, and $20.6 million and $41.2 million during the three and six months ended June 30, 2014, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.6 million during the three and six months ended June 30, 2015, respectively, and $0.3 million and $0.7 million during the three and six months ended June 30, 2014, respectively. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our consolidated statements of operations.

Under the terms of our product supply agreement, SPD purchases products from our manufacturing facilities in China. SPD in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, a portion of the tests are sold to P&G for distribution to third-party customers in North America. As a result of these related transactions, we have recorded $10.6 million and $10.5 million of trade receivables which are included in accounts receivable on our consolidated balance sheets as of June 30, 2015 and December 31, 2014, respectively, and $22.2 million and $30.8 million of trade accounts payable which are included in accounts payable on our consolidated balance sheets as of June 30, 2015 and December 31, 2014, respectively.

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

 

Balance Sheet Caption

   June 30, 2015      December 31, 2014  

Accounts receivable, net of allowances

   $ 10,629       $ 10,465   

Prepaid expenses and other current assets

   $ 8,363       $ 9,635   

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

   $ 9,432       $ 10,875   

Accounts payable

   $ 24,163       $ 34,816   

SPD is currently involved in civil litigation brought by a competitor in the United States with respect to the advertising of one of SPD’s products in the United States. While the court held that SPD violated certain laws with respect to the advertising of such product, SPD has filed an appeal of the court’s ruling. We are unable to determine the ultimate resolution of this matter at this time, or the impact it may have on SPD or us, including whether such resolution of the litigation or any damages imposed by the court would have a material adverse impact on SPD and, ultimately, by virtue of our 50% interest in SPD, on our financial position or results of operations.

(b) Entrustment Loan Arrangement with SPD Shanghai

Our subsidiary Alere (Shanghai) Diagnostics Co., Ltd., or Alere Shanghai, and SPD’s subsidiary SPD Trading (Shanghai) Co., Ltd., or SPD Shanghai, entered into an entrustment loan arrangement for a maximum of CNY 23 million (approximately $3.8 million at June 30, 2015), in order to finance the latter’s short-term working capital needs, with the Royal Bank of Scotland (China) Co., Ltd. Shanghai Branch, or RBS. The agreement governs the setting up of an Entrustment Loan Account with RBS, into which Alere Shanghai deposits certain monies. This restricted cash account provides a guarantee to RBS of amounts borrowed from RBS by SPD Shanghai. The Alere Shanghai RBS account is recorded as restricted cash on our balance sheet and amounted to $3.8 million at June 30, 2015.

(16) Other Arrangements

In September 2014, we entered into a contract with the U.S. Department of Health and Human Services’ Biomedical Advanced Research and Development Authority, or BARDA, to develop diagnostic countermeasures for pandemic influenza. Under the terms of the 3.5 year contract, BARDA will provide up to $12.9 million to us to support the development of a rapid, molecular, low-cost influenza diagnostic device with PCR-like performance at the point-of-care. The project is designed to help support future preparedness and medical response to an influenza pandemic. Funding from BARDA is subject to successful completion of various

 

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interim feasibility and development milestones as defined in the agreement. For the three and six months ended June 30, 2015, we had incurred $0.9 million and $1.4 million, respectively, of qualified expenditures under the contract, for which we had received cash reimbursement from BARDA in the amount of $0.6 million and $1.0 million, respectively, and $0.4 million was recorded as a receivable as of that date. Reimbursements of qualified expenditures under this contract are recorded as a reduction of our related qualified research and development expenditures.

In February 2013, we entered into an agreement with the Bill and Melinda Gates Foundation, or the Gates Foundation, whereby we were awarded a grant by the Gates Foundation in the amount of $21.6 million to support the development and commercialization of a validated, low-cost, nucleic-acid assay for clinical Tuberculosis, or TB, detection and drug-resistance test cartridges and adaptation of an analyzer platform capable of operation in rudimentary laboratories in low-resource settings. In connection with this agreement, we also entered into a loan agreement with the Gates Foundation, or the Gates Loan Agreement, which provides for the making of subordinated term loans by the Gates Foundation to us from time to time, subject to the achievement of certain milestones, in an aggregate principal amount of up to $20.6 million. Funding under the Gates Loan Agreement will be used in connection with the purchase of equipment for an automated high-throughput manufacturing line and other uses as necessary for the manufacture of the TB and HIV-related products. All loans under the Gates Loan Agreement are evidenced by promissory notes that we have executed and delivered to the Gates Foundation, bear interest at the rate of 3% per annum and, except to the extent earlier repaid by us, mature and are required to be repaid in full on December 31, 2019. As of June 30, 2015, we had borrowed no amounts under the Gates Loan Agreement. As of June 30, 2015, we had received approximately $19.7 million in grant-related funding from the Gates Foundation, which was recorded as restricted cash and deferred grant funding. As of June 30, 2015, we had deferred grant funding of $0.3 million relating to our agreement with the Gates Foundation, which is classified within accrued expenses and other current liabilities on our consolidated balance sheet. As qualified expenditures are incurred under the terms of the grant, we use the deferred funding to recognize a reduction of our related qualified research and development expenditures. For the three and six months ended June 30, 2015, we incurred $1.5 million and $3.6 million, and for the three and six months ended June 30, 2014, we incurred $0.1 million and $2.2 million, respectively, of qualified expenditures, for which we reduced our deferred grant funding balance and recorded an offset to our research and development expenses.

(17) Commitments and Contingencies

(a) Acquisition-related Contingent Consideration Obligations

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

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

During the three months ended June 30, 2015, we revised the fair value estimates for the milestones related to the TwistDx, Inc. contingent consideration obligation to incorporate increased probabilities of success as a result of positive technological developments of related technology and regulatory approvals of certain related platforms. Accordingly, we recorded a charge associated with the resulting change in fair value of $15.6 million, which is included in general and administrative expense in our accompanying consolidated statement of operations.

Additionally, during the three months ended June 30, 2015, we revised the fair value estimates for the milestones related to the Epocal contingent consideration obligation to reflect decreased probabilities of success and delayed cash inflows and clinical development timelines due to a strategic shift and re-allocation of research and development resources. As a result, we recorded income associated with the resulting change in fair value of $31.2 million, which is included in general and administrative expense in our accompanying consolidated statement of operations.

Furthermore, we also recorded income of $24.5 million associated with a change in the fair value of our Ionian contingent consideration obligation to zero, which was included in the general and administrative expense in our accompanying consolidated statement of operations. The remaining product development milestones under the agreement were not achieved by the July 2015 deadline and, as such, the probability of making the related milestone payments was reduced to zero.

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

 

Acquisition

   Acquisition Date      Acquisition
Date Fair
Value
     Maximum
Remaining
Earn-out
Potential
as of
June 30,
2015
    Remaining
Earn-out
Period as
of
June 30,
2015
    Estimated
Fair Value as
of
June 30,
2015
     Estimated
Fair Value as
of
December 31,
2014
     Payments
Made
during
2015
 

TwistDx, Inc.(1)

     March 11, 2010       $ 35,600       $ 103,376        2015 – 2025 (5)    $ 51,600       $ 41,100       $ 5,248   

Ionian Technologies, Inc. (2)

     July 12, 2010       $ 24,500       $ 50,000        2015        —           24,500         —     

DiagnosisOne, Inc. (3)

     July 31, 2012       $ 22,300       $ —         —          —           21,000         6,000   

Epocal(4)

     February 1, 2013       $ 75,000       $ 65,500        2015 – 2018        16,300         47,200         —     

Other

     Various       $ 30,373       $ —   (6)      2015 – 2016        5,007         5,871         403   
            

 

 

    

 

 

    

 

 

 
             $ 72,907       $ 139,671       $ 11,651   
            

 

 

    

 

 

    

 

 

 

 

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(1)  The terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets through 2025.
(2)  The terms of the acquisition agreement require us to pay earn-outs upon successfully meeting multiple product development milestones during the five years following the acquisition.
(3)  On March 25, 2015, the remaining earn-out was settled for $6.0 million, of which $4.5 million was paid on March 27, 2015 and $1.5 million was paid on April 3, 2015.
(4)  The terms of the acquisition agreement require us to pay earn-outs and management incentive payments upon successfully meeting certain product development and United States Food and Drug Administration regulatory approval milestones from the date of acquisition through December 31, 2018.
(5)  The maximum earn-out period ends on the fifteenth anniversary of the acquisition date.
(6)  The maximum remaining earn-out potential for the other acquisitions is not determinable due to the nature of one of the earn-outs, which is tied to an unlimited revenue metric.

(b) Legal Proceedings

 

    Matters Relating to our San Diego Facility

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

In May 2012, we also received a subpoena from the Office of Inspector General of the Department of Health and Human Services, or the OIG, seeking documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the OIG and have provided documents in response to the OIG under the subpoena.

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

 

    Matters Related to Theft of Laptop

In September 2012, a password-protected laptop containing personally identifiable information of approximately 116,000 patients was stolen from an employee of Alere Home Monitoring, or AHM. On January 24, 2013, a class action complaint was filed in the U.S. District Court for the Northern District of California against AHM, asserting claims for damages and other relief under California state law, including under California’s Confidentiality of Medical Information Act, or CMIA, arising out of this theft. On October 7, 2014, the class action was dismissed with leave to amend the complaint. On October 28, 2014, an amended complaint was filed, and on November 17, 2014 AHM responded by filing another motion to dismiss. On February 23, 2015, AHM’s motion to dismiss was granted in part, but denied as to the plaintiffs’ amended CMIA claims. The parties to the litigation have reached a settlement in principle that, if approved, will result in a nominal payment by us.

 

    Claims in the Ordinary Course and Other Matters

We are not a party to any other pending legal proceedings that we currently believe could have a material adverse impact on our business. However, on December 10, 2014, we and our subsidiary, Avee Laboratories Inc., or Avee, received subpoenas from the United States Attorney for the District of New Jersey seeking marketing materials and other documents relating primarily to billing and marketing practices related to toxicology testing. We are cooperating with the investigation and have begun to provide documents responsive to the subpoenas. Our subsidiary, Arriva Medical, LLC, or Arriva, is also in the process of responding to a Civil Investigative Demand, or CID, from the United States Attorney for the Middle District of Tennessee in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The CID requests patient and billing records. Both investigations are in preliminary stages, and we cannot predict what effect, if any, the investigations, or any resulting claims, could have on Alere or its subsidiaries.

Our diabetes, toxicology and patient self-testing business areas are subject to audit and claims for reimbursement brought in the ordinary course by private third-party payers, including health insurers, Zone Program Integrity Contractors, or ZPICs, and Medicare Administrative Contractors, or MACs, to monitor compliance with coverage and reimbursement rules and guidelines. These types of audits and claims can include, but are not limited to, claims relating to proper documentation and support or claims relating to the medical necessity of certain testing and can lead to assertions or determinations that certain claims should not have been, or will no longer be, paid by the private third-party payer or by Medicare or Medicaid. In such cases, the payer or program may seek to recoup or offset amounts they assert have been paid in error.

 

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Our businesses may also be subject at any time to other commercial disputes, product liability claims, including claims arising from or relating to product recalls, negligence claims or various other lawsuits arising in the ordinary course of business, including infringement, employment or investor matters, and we expect that this will continue to be the case in the future. Such lawsuits or claims generally seek damages or reimbursement, sometimes in substantial amounts.

(18) Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that we must adopt by the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position, results of operations, comprehensive income or cash flows upon adoption. Please also see Note 4, Summary of Significant Accounting Policies, to our consolidated financial statements included within Amendment No. 2 to our Annual Report on Form 10-K/A for the year ended December 31, 2014.

Recently Issued Standards

In April 2015, the FASB issued Accounting Standards Update, or ASU, No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 is intended to simplify the presentation of debt issuance costs. It requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2015-03 on our consolidated financial statements and expect, upon adoption, we will revise our current presentation of debt issuance costs on our consolidated balance sheet.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, or ASU 2014-09 as a new Topic, Accounting Standards Codification Topic 606. ASU 2014-09 sets forth a new revenue recognition standard that provides for a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company 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. In July 2015, the FASB finalized a one-year delay in the effective date of this standard, which will now be effective for us on January 1, 2018; however, early adoption is permitted any time after the original effective date, which for us is January 1, 2017. We have not yet selected a transition method and are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements.

Recently Adopted Standards

None.

(19) Equity Investments

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

(a) SPD

We recorded earnings of $0.6 million and $4.2 million during the three and six months ended June 30, 2015, respectively, and earnings of $1.8 million and $6.9 million during the three and six months ended June 30, 2014, respectively, in equity earnings of unconsolidated entities, net of tax, in our consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods. During the three and six months ended June 30, 2015, we received $12.1 million in cash from SPD as a return of capital.

(b) TechLab

We own 49% of TechLab, Inc., or TechLab, a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic-associated diarrhea and parasitology. We recorded earnings of $0.4 million and $0.8 million during the three and six months ended June 30, 2015, respectively, and earnings of $0.4 million and $0.7 million during the three and six months ended June 30, 2014, respectively, in equity earnings of unconsolidated entities, net of tax, in our consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective periods. During the three and six months ended June 30, 2015, we received $2.2 million in cash from TechLab as a return of capital.

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

 

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

Combined Condensed Results of Operations:

   2015      2014      2015      2014  

Net revenue

   $ 53,159       $ 41,203       $ 101,016       $ 90,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

   $ 34,559       $ 37,432       $ 67,830       $ 80,412   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income after taxes

   $ 3,039       $ 4,328       $ 11,096       $ 15,158   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Combined Condensed Balance Sheet:

   June 30, 2015      December 31, 2014  

Current assets

   $ 75,612       $ 90,546   

Non-current assets

     33,292         33,697   
  

 

 

    

 

 

 

Total assets

   $ 108,904       $ 124,243   
  

 

 

    

 

 

 

Current liabilities

   $ 44,878       $ 35,954   

Non-current liabilities

     2,184         5,884   
  

 

 

    

 

 

 

Total liabilities

   $ 47,062       $ 41,838   
  

 

 

    

 

 

 

As of June 30, 2015, we met the held for sale criteria with respect to our 49% investment in TechLab. We intend to use all or a portion of the proceeds from any sale of this investment to repay a portion of the indebtedness outstanding under our secured credit facility. Accordingly, we have classified our investment in TechLab in Assets held for sale – non-current in our consolidated balance sheet as of June 30, 2015.

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

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

In March 2015, we sold certain assets of our AdnaGen GmbH business, which was part of our professional diagnostics reporting unit and business segment, for approximately $4.6 million in cash proceeds and, as a result of this transaction, we recorded a gain of $0.2 million during the six months ended June 30, 2015.

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

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

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

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

(21) Direct-response Advertising

In connection with our mail order diabetes business, we incurred direct-response advertising and associated costs in connection with the placement of advertisements. Direct-response advertising and associated costs payable to third parties for the period presented are capitalized and amortized to selling, general and administrative expenses on an accelerated basis in the month following the broadcast month. Management assesses the realizability of the amounts of direct-response advertising costs reported as assets at each balance sheet date by comparing the net carrying value of capitalized advertising to the net present value of estimated future orders expected to result directly from such advertising. Advertising that does not meet the capitalization requirements is expensed in the current period.

Any change in existing accounting rules or a business change that impacts expected future orders or that shortens the period over which such net future benefits are estimated to be realized could result in accelerated charges against our earnings. In addition, new or different marketing initiatives that may not qualify for direct-response advertising could result in accelerated charges against our earnings. Whether there is an impairment loss or not is determined by comparing the net carrying value of direct-response advertising

 

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costs capitalized as assets at each balance sheet date to the probable remaining future orders expected to result directly from such advertising. If the net carrying value of the assets exceeds the probable remaining future orders expected to result directly from such assets, an impairment loss is recognized in an amount equal to that excess. Future benefits are determined by calculating the net present value of estimated future orders per cost pool. Net present value is calculated based upon the value of an order multiplied by the estimated future orders. Estimate of future orders is determined based on historical customer reorder rates. We perform the impairment test of our direct-response advertising asset in the quarter following the advertising broadcast quarter.

(22) Provision (Benefit) for Income Taxes

The provision for income taxes increased by $12.3 million to a $17.7 million provision for the three months ended June 30, 2015, from a $5.4 million provision for the three months ended June 30, 2014. The provision for income taxes increased by $5.1 million to an $8.9 million provision for the six months ended June 30, 2015, from a $3.8 million provision for the six months ended June 30, 2014. The effective tax rate for the three months ended June 30, 2015 and 2014 was 48.4% and (10.0)%, respectively. The effective tax rate for the six months ended June 30, 2015 and 2014 was 54.7% and (5.9)%, respectively. Our effective tax rate is based on our year-to-date results and projected income (loss) and is primarily impacted by changes in the geographical mix of consolidated pre-tax income (loss) as well as items that are accounted for discretely in the quarter. The change in the effective tax rate for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 is primarily a result of our forecasted jurisdictional mix of income (loss), limitations on the utilization of foreign tax credits, and loss entity valuation allowance changes. The increase in the effective tax rate from the six months ended June 30, 2014 to the six months ended June 30, 2015 is primarily a result of our forecasted jurisdictional mix of income (loss), limitations on the utilization of foreign tax credits, and loss entity valuation allowance changes.

(23) Guarantor Financial Information

Our 7.25% senior notes due 2018, our 8.625% senior subordinated notes due 2018, our 6.5% senior subordinated notes due 2020 and our 6.375% senior subordinated notes due 2023 are guaranteed by certain of our consolidated 100% owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, balance sheets as of June 30, 2015 and December 31, 2014, the related statements of operations and comprehensive income (loss) for each of the three and six months ended June 30, 2015 and 2014, respectively, and the statements of cash flows for the six months ended June 30, 2015 and 2014, respectively, for Alere Inc., the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of Alere Inc. and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

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

For comparative purposes, certain amounts for prior periods have been reclassified to conform to the current period classification. Prior periods have been presented on a basis that is consistent with the current period, giving retrospective effect to the impact of discontinued operations.

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2015

(in thousands)

 

           Guarantor     Non-Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net product sales

   $ —        $ 212,604      $ 350,063      $ (65,833   $ 496,834   

Services revenue

     —          114,983        11,645        —          126,628   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          327,587        361,708        (65,833     623,462   

License and royalty revenue

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          330,820        367,418        (69,082     629,156   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     417        120,939        194,199        (57,070     258,485   

Cost of services revenue

     80        77,884        7,477        (8,688     76,753   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     497        198,823        201,676        (65,758     335,238   

Cost of license and royalty revenue

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     516        199,233        205,840        (69,007     336,582   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (516     131,587        161,578        (75     292,574   

Operating expenses:

          

Research and development

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

Sales and marketing

     1,570        52,101        53,513        —          107,184   

General and administrative

     24,390        51,288        (14,865     —          60,813   

Impairment and (gain) loss on dispositions, net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (74,095     53,617        112,390        (75     91,837   

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

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

Other income (expense), net

     3,596        4,576        3,442        (7,354     4,260   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (129,585     55,133        111,130        (75     36,603   

Provision (benefit) for income taxes

     (16,306     11,277        22,768        (38     17,701   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (113,279     43,856        88,362        (37     18,902   

Equity in earnings of subsidiaries, net of tax

     132,620        —          —          (132,620     —     

Equity earnings of unconsolidated entities, net of tax

     922        —          424        15        1,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     20,263        43,856        88,786        (132,642     20,263   

Less: Net income attributable to non-controlling interests

     —          —          359        —          359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     20,263        43,856        88,427        (132,642     19,904   

Preferred stock dividends

     (5,309     —          —          —          (5,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 14,954      $ 43,856      $ 88,427      $ (132,642   $ 14,595   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2014

(in thousands)

 

                 Non -              
           Guarantor     Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net product sales

   $ —        $ 199,339      $ 358,657      $ (57,638   $ 500,358   

Services revenue

     —          122,436        18,000        —          140,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          321,775        376,657        (57,638     640,794   

License and royalty revenue

     —          3,835        6,001        (3,232     6,604   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          325,610        382,658        (60,870     647,398   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     691        119,442        203,035        (51,481     271,687   

Cost of services revenue

     70        73,993        8,674        (6,844     75,893   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     761        193,435        211,709        (58,325     347,580   

Cost of license and royalty revenue

     —          47        4,310        (3,232     1,125   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     761        193,482        216,019        (61,557     348,705   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (761     132,128        166,639        687        298,693   

Operating expenses:

          

Research and development

     7,163        15,590        14,677        —          37,430   

Sales and marketing

     3,196        60,175        72,430        —          135,801   

General and administrative

     25,952        46,458        58,163        —          130,573   

Loss on disposition

     —          638        —          —          638   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (37,072     9,267        21,369        687        (5,749

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

     (51,385     (5,019     (4,590     8,960        (52,034

Other income (expense), net

     2,423        5,073        4,683        (8,960     3,219   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (86,034     9,321        21,462        687        (54,564

Provision (benefit) for income taxes

     (12,977     8,620        9,620        201        5,464   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (73,057     701        11,842        486        (60,028

Equity in earnings of subsidiaries, net of tax

     12,596        164        —          (12,760     —     

Equity earnings of unconsolidated entities, net of tax

     422        —          1,673        (8     2,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (60,039     865        13,515        (12,282     (57,941

Income (loss) from discontinued operations, net of tax

     15,013        (2,044     (54     —          12,915   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (45,026     (1,179     13,461        (12,282     (45,026

Less: Net income attributable to non-controlling interests

     —          —          62        —          62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (45,026     (1,179     13,399        (12,282     (45,088

Preferred stock dividends

     (5,309     —          —          —          (5,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (50,335   $ (1,179   $ 13,399      $ (12,282   $ (50,397
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2015

(in thousands)

 

           Guarantor     Non-Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net product sales

   $ —        $ 429,812      $ 673,260      $ (126,639   $ 976,433   

Services revenue

     —          223,040        27,444        —          250,484   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          652,852        700,704        (126,639     1,226,917   

License and royalty revenue

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          659,282        710,777        (132,750     1,237,309   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     833        234,130        374,245        (112,086     497,122   

Cost of services revenue

     130        151,921        15,872        (15,589     152,334   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     963        386,051        390,117        (127,675     649,456   

Cost of license and royalty revenue

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     942        387,269        398,325        (133,786     652,750   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (942     272,013        312,452        1,036        584,559   

Operating expenses:

          

Research and development

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

Sales and marketing

     2,830        105,328        108,105        —          216,263   

General and administrative

     44,913        89,058        19,533        —          153,504   

Impairment and (gain) loss on dispositions, net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (135,129     57,519        195,818        1,036        119,244   

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

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

Other income (expense), net

     7,243        8,875        1,221        (14,349     2,990   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (233,070     60,049        188,294        1,036        16,309   

Provision (benefit) for income taxes

     (36,973     13,097        32,483        308        8,915   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (196,097     46,952        155,811        728        7,394   

Equity in earnings of subsidiaries, net of tax

     205,553        —          —          (205,553     —     

Equity earnings of unconsolidated entities, net of tax

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     10,802        46,952        159,803        (204,843     12,714   

Income (loss) from discontinued operations, net of tax

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     229,491        45,040        159,803        (204,843     229,491   

Less: Net income attributable to non-controlling interests

     —          —          447        —          447   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Alere Inc. and Subsidiaries

     229,491        45,040        159,356        (204,843     229,044   

Preferred stock dividends

     (10,559     —          —          —          (10,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 218,932      $ 45,040      $ 159,356      $ (204,843   $ 218,485   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2014

(in thousands)

 

                 Non -              
           Guarantor     Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net product sales

   $ —        $ 408,623      $ 694,395      $ (111,341   $ 991,677   

Services revenue

     —          233,087        36,057        —          269,144   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          641,710        730,452        (111,341     1,260,821   

License and royalty revenue

     —          7,319        11,020        (6,523     11,816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          649,029        741,472        (117,864     1,272,637   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     1,379        230,460        386,795        (103,966     514,668   

Cost of services revenue

     143        141,701        16,675        (12,265     146,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     1,522        372,161        403,470        (116,231     660,922   

Cost of license and royalty revenue

     —          139        9,048        (6,523     2,664   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     1,522        372,300        412,518        (122,754     663,586   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (1,522     276,729        328,954        4,890        609,051   

Operating expenses:

          

Research and development

     12,778        30,435        32,916        —          76,129   

Sales and marketing

     5,064        121,114        142,667        —          268,845   

General and administrative

     44,708        82,527        106,957        —          234,192   

Loss on disposition

     —          638        —          —          638   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (64,072     42,015        46,414        4,890        29,247   

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

     (102,643     (10,513     (9,134     18,346        (103,944

Other income (expense), net

     7,117        11,032        10,506        (18,404     10,251   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (159,598     42,534        47,786        4,832        (64,446

Provision (benefit) for income taxes

     (45,293     29,239        18,179        1,659        3,784   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (114,305     13,295        29,607        3,173        (68,230

Equity in earnings of subsidiaries, net of tax

     47,665        232        —          (47,897     —     

Equity earnings of unconsolidated entities, net of tax

     827        —          6,737        (125     7,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (65,813     13,527        36,344        (44,849     (60,791

Income (loss) from discontinued operations, net of tax

     15,341        (5,803     781        —          10,319   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (50,472     7,724        37,125        (44,849     (50,472

Less: Net income attributable to non-controlling interests

     —          —          170        —          170   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (50,472     7,724        36,955        (44,849     (50,642

Preferred stock dividends

     (10,559     —          —          —          (10,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (61,031   $ 7,724      $ 36,955      $ (44,849   $ (61,201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2015

(in thousands)

 

                   Non-              
            Guarantor      Guarantor              
     Issuer      Subsidiaries      Subsidiaries     Eliminations     Consolidated  

Net income

   $ 20,263       $ 43,856       $ 88,786      $ (132,642   $ 20,263   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

            

Changes in cumulative translation adjustment

     196         689         45,841        —          46,726   

Minimum pension liability adjustment

     —           —           (374     —          (374
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     196         689         45,467        —          46,352   

Income tax benefit related to items of other comprehensive income

     —           —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     196         689         45,467        —          46,352   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

     20,459         44,545         134,253        (132,642     66,615   

Less: Comprehensive income attributable to non-controlling interests

     —           —           359        —          359   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 20,459       $ 44,545       $ 133,894      $ (132,642   $ 66,256   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2014

(in thousands)

 

                 Non-              
           Guarantor     Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net income (loss)

   $ (45,026   $ (1,179   $ 13,461      $ (12,282   $ (45,026
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax:

          

Changes in cumulative translation adjustment

     89        55        37,671        —          37,815   

Unrealized gains on hedging instruments

     —          —          6        —          6   

Minimum pension liability adjustment

     —          —          (87     —          (87
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     89        55        37,590        —          37,734   

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

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     89        55        37,590        —          37,734   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (44,937     (1,124     51,051        (12,282     (7,292

Less: Comprehensive income attributable to non-controlling interests

     —          —          62        —          62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (44,937   $ (1,124   $ 50,989      $ (12,282   $ (7,354
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2015

(in thousands)

 

                  Non-              
           Guarantor      Guarantor              
     Issuer     Subsidiaries      Subsidiaries     Eliminations     Consolidated  

Net income

   $ 229,491      $ 45,040       $ 159,803      $ (204,843   $ 229,491   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

           

Changes in cumulative translation adjustment

     (461     117         (33,272     —          (33,616

Minimum pension liability adjustment

     —          —           (1,756     —          (1,756
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     (461     117         (35,028     —          (35,372

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

     —          —           —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (461     117         (35,028     —          (35,372
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

     229,030        45,157         124,775        (204,843     194,119   

Less: Comprehensive income attributable to non-controlling interests

     —          —           447        —          447   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Alere Inc. and Subsidiaries

   $ 229,030      $ 45,157       $ 124,328      $ (204,843   $ 193,672   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

34


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CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2014

(in thousands)

 

                 Non-              
           Guarantor     Guarantor              
     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net income (loss)

   $ (50,472   $ 7,724      $ 37,125      $ (44,849   $ (50,472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

          

Changes in cumulative translation adjustment

     246        (74     26,303        —          26,475   

Unrealized losses on available for sale securities

     —          (17     —          —          (17

Unrealized gains on hedging instruments

     —          —          14        —          14   

Minimum pension liability adjustment

     —          —          (13     —          (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     246        (91     26,304        —          26,459   

Income tax benefit related to items of other comprehensive loss

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     246        (91     26,304        —          26,459   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (50,226     7,633        63,429        (44,849     (24,013

Less: Comprehensive income attributable to non-controlling interests

     —          —          170        —          170   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (50,226   $ 7,633      $ 63,259      $ (44,849   $ (24,183
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


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CONSOLIDATING BALANCE SHEET

June 30, 2015

(in thousands)

 

           Guarantor     Non-Guarantor               
     Issuer     Subsidiaries     Subsidiaries      Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 42,407      $ 75,005      $ 347,459       $ —        $ 464,871   

Restricted cash

     427,181        —          34,455         —          461,636   

Marketable securities

     —          175        —           —          175   

Accounts receivable, net of allowances

     —          197,643        275,043         —          472,686   

Inventories, net

     —          199,654        188,133         (21,447     366,340   

Deferred tax assets

     (36,568     29,165        27,908         (2,120     18,385   

Prepaid expenses and other current assets

     14,217        23,036        81,554         6,752        125,559   

Assets held for sale – current

     —          —          28,631         —          28,631   

Intercompany receivables

     573,462        660,375        66,677         (1,300,514     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     1,020,699        1,185,053        1,049,860         (1,317,329     1,938,283   

Property, plant and equipment, net

     30,663        225,914        191,877         (152     448,302   

Goodwill

     —          1,795,118        1,058,433         —          2,853,551   

Other intangible assets with indefinite lives

     —          8,200        33,165         (59     41,306   

Finite-lived intangible assets, net

     5,194        660,561        427,431         —          1,093,186   

Deferred financing costs, net and other non-current assets

     46,331        4,574        16,928         (99     67,734   

Investments in subsidiaries

     3,368,524        179,853        58,321         (3,606,698     —     

Investments in unconsolidated entities

     503        14,765        39,919         14,407        69,594   

Deferred tax assets

     —          —          7,633         —          7,633   

Non-current income tax receivable

     2,611        —          —           —          2,611   

Assets held for sale – non-current

     12,363        —          116,831         —          129,194   

Intercompany notes receivables

     2,047,832        694,785        15,779         (2,758,396     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 6,534,720      $ 4,768,823      $ 3,016,177       $ (7,668,326   $ 6,651,394   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Current liabilities:

           

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

   $ 601,712      $ —        $ 27,659       $ —        $ 629,371   

Current portion of capital lease obligations

     —          1,809        2,834         —          4,643   

Accounts payable

     13,949        75,026        97,966         —          186,941   

Accrued expenses and other current liabilities

     (516,724     633,878        189,852         2,388        309,394   

Liabilities related to assets held for sale – current

     6,996        (6,996     7,663         —          7,663   

Intercompany payables

     847,581        232,066        220,866         (1,300,513     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     953,514        935,783        546,840         (1,298,125     1,138,012   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     2,951,161        —          6,875         —          2,958,036   

Capital lease obligations, net of current portion

     —          2,070        4,843         —          6,913   

Deferred tax liabilities

     (53,700     216,438        64,671         82        227,491   

Other long-term liabilities

     41,758        64,920        39,662         (100     146,240   

Liabilities related to assets held for sale – non-current

     —          —          11,527         —          11,527   

Intercompany notes payables

     483,405        1,222,259        1,052,732         (2,758,396     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,422,624        1,505,687        1,180,310         (2,758,414     3,350,207   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     2,158,582        2,327,353        1,284,434         (3,611,787     2,158,582   

Non-controlling interests

     —          —          4,593         —          4,593   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     2,158,582        2,327,353        1,289,027         (3,611,787     2,163,175   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 6,534,720      $ 4,768,823      $ 3,016,177       $ (7,668,326   $ 6,651,394   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

36


Table of Contents

CONSOLIDATING BALANCE SHEET

December 31, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 2,149      $ 69,154       $ 307,158       $ —        $ 378,461   

Restricted cash

     5,012        —           32,559         —          37,571   

Marketable securities

     —          259         —           —          259   

Accounts receivable, net of allowances

     —          192,775         273,331         —          466,106   

Inventories, net

     —          191,323         195,606         (21,764     365,165   

Deferred tax assets

     36,347        44,961         31,265         —          112,573   

Prepaid expenses and other current assets

     9,800        31,410         88,695         2,508        132,413   

Assets held for sale – current

     1,361        284,369         29,785         —          315,515   

Intercompany receivables

     404,990        888,688         55,923         (1,349,601     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     459,659        1,702,939         1,014,322         (1,368,857     1,808,063   

Property, plant and equipment, net

     30,547        218,613         204,188         222        453,570   

Goodwill

     —          1,795,663         1,131,003         —          2,926,666   

Other intangible assets with indefinite lives

     —          9,287         34,422         (58     43,651   

Finite-lived intangible assets, net

     6,104        742,760         527,580         —          1,276,444   

Deferred financing costs, net and other non-current assets

     40,992        5,334         21,541         (35     67,832   

Investments in subsidiaries

     3,740,004        179,315         58,067         (3,977,386     —     

Investments in unconsolidated entities

     13,987        14,765         49,608         13,333        91,693   

Deferred tax assets

     —          —           8,569         —          8,569   

Non-current income tax receivable

     2,468        —           —           —          2,468   

Intercompany notes receivables

     2,028,701        649,444         46,676         (2,724,821     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 6,322,462      $ 5,318,120       $ 3,095,976       $ (8,057,602   $ 6,678,956   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities:

            

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

   $ 61,700      $ 2       $ 27,173       $ —        $ 88,875   

Current portion of capital lease obligations

     —          1,045         3,196         —          4,241   

Accounts payable

     21,402        81,741         110,449         —          213,592   

Accrued expenses and other current liabilities

     (536,286     663,221         248,604         (45     375,494   

Liabilities related to assets held for sale – current

     1,094        77,749         —           —          78,843   

Intercompany payables

     902,576        198,788         248,237         (1,349,601     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     450,486        1,022,546         637,659         (1,349,646     761,045   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Long-term liabilities:

            

Long-term debt, net of current portion

     3,615,759        —           5,626         —          3,621,385   

Capital lease obligations, net of current portion

     —          4,097         6,463         —          10,560   

Deferred tax liabilities

     (107,844     252,944         69,457         82        214,639   

Other long-term liabilities

     42,762        46,865         71,988         (33     161,582   

Intercompany notes payables

     415,700        1,276,245         1,032,876         (2,724,821     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,966,377        1,580,151         1,186,410         (2,724,772     4,008,166   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     1,905,599        2,715,423         1,267,761         (3,983,184     1,905,599   

Non-controlling interests

     —          —           4,146         —          4,146   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,905,599        2,715,423         1,271,907         (3,983,184     1,909,745   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 6,322,462      $ 5,318,120       $ 3,095,976       $ (8,057,602   $ 6,678,956   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

37


Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2015

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flows from Operating Activities:

          

Net income

   $ 229,491      $ 45,040      $ 159,803      $ (204,843   $ 229,491   

Income (loss) from discontinued operations, net of tax.

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     10,802        46,952        159,803        (204,843     12,714   

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

          

Equity in earnings of subsidiaries, net of tax

     (205,553     —          —          205,553        —     

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

     7,728        13        43        —          7,784   

Depreciation and amortization

     3,840        82,576        60,560        35        147,011   

Non-cash stock-based compensation expense

     6,458        2,633        3,188        —          12,279   

Impairment of inventory

     —          133        (65     —          68   

Impairment of long-lived assets

     —          64        323        —          387   

Loss on disposition of fixed assets

     —          2,764        554        —          3,318   

Equity earnings of unconsolidated entities, net of tax

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

Gain on sales of marketable securities.

     —          (8     —          —          (8

Deferred income taxes

     (8,686     (30,581     (1,826     438        (40,655

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

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

Loss on extinguishment of debt

     3,480        —          —          —          3,480   

Other non-cash items

     (159     (1,497     (676     —          (2,332

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

     (30,895     15,748        (37,720     —          (52,867

Changes in assets and liabilities, net of acquisitions:

          

Accounts receivable, net

     —          (5,779     (21,685     —          (27,464

Inventories, net

     —          (26,943     (17,739     (1,411     (46,093

Prepaid expenses and other current assets

     (3,052     (19,127     810        (5,708     (27,077

Accounts payable

     (7,499     (11,331     (4,421     —          (23,251

Accrued expenses and other current liabilities

     (8,944     59,310        (26,607     3,898        27,657   

Other non-current liabilities

     915        5,278        (1,783     1,615        6,025   

Cash paid for contingent purchase price consideration

     (3,768     —          (13     —          (3,781

Intercompany payable (receivable)

     127,569        (101,515     (26,054     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

     (28,209     9,886        50,937        (405     32,209   

Net cash provided by discontinued operations

     —          318        —          —          318   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (28,209     10,204        50,937        (405     32,527   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

          

Increase in restricted cash

     (422,169     —          (1,856     —          (424,025

Purchases of property, plant and equipment

     (5,147     (19,386     (23,907     1,156        (47,284

Proceeds from sale of property, plant and equipment

     —          738        1,199        (817     1,120   

Cash received from (used in) disposition, net of cash divested

     593,217        (8,723     2,131        —          586,625   

Cash received from equity method investments

     2,205        —          12,092        —          14,297   

Cash received from sales of marketable securities.

     —          93        —          —          93   

Decrease in other assets

     348        409        927        66        1,750   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) continuing operations

     168,454        (26,869     (9,414     405        132,576   

Net cash used in discontinued operations

     —          (209     —          —          (209
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     168,454        (27,078     (9,414     405        132,367   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

          

Cash paid for financing costs

     (15,731     —          —          —          (15,731

Cash paid for contingent purchase price consideration

     (5,503     —          (870     —          (6,373

Proceeds from issuance of common stock, net of issuance costs

     56,332        —          —          —          56,332   

Proceeds from issuance of long-term debt

     2,119,125        —          2,726        —          2,121,851   

Payments on short-term debt

     —          —          (584     —          (584

Payments on long-term debt

     (2,117,875     —          (389     —          (2,118,264

Net payments under revolving credit facilities

     (127,000     —          680        —          (126,320

Cash paid for dividends

     (10,646     —          —          —          (10,646

Excess tax benefits on exercised stock options

     1,311        893