UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

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

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

COMMISSION FILE NUMBER 001-16789

ALERE INC.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		04-3565120 (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.

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).

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 þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of May 2, 2011 was 85,509,607.

 

 

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended March 31, 2011

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. A number of important factors could cause actual results of Alere Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2010 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
Item 1. Unaudited Financial Statements
a) Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010			3
b) Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			4
c) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010			5
d) Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			39
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 6. Exhibits			41
SIGNATURE			42
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

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 March 31,
		2011				2010
Net product sales		$	407,243			$	350,101
Services revenue			167,552				159,304
Net product sales and services revenue			574,795				509,405
License and royalty revenue			7,669				5,849
Net revenue			582,464				515,254
Cost of net product sales			189,687				163,705
Cost of services revenue			84,716				75,785
Cost of net product sales and services revenue			274,403				239,490
Cost of license and royalty revenue			1,854				1,807
Cost of net revenue			276,257				241,297
Gross profit			306,207				273,957
Operating expenses:
Research and development			36,542				30,993
Sales and marketing			133,209				119,591
General and administrative			105,551				94,663
Total operating expenses			275,302				245,247
Operating income			30,905				28,710
Interest expense, including amortization of original issue discounts and deferred financing costs			(38,305	)			(33,135	)
Other income (expense), net			2,336				3,044
Loss from continuing operations before provision (benefit) for income taxes			(5,064	)			(1,381	)
Provision (benefit) for income taxes			(4,330	)			446
Loss from continuing operations before equity earnings of unconsolidated entities, net of tax			(734	)			(1,827	)
Equity earnings of unconsolidated entities, net of tax			1,011				4,040
Income from continuing operations			277				2,213
Income from discontinued operations, net of tax			—				11,946
Net income			277				14,159
Less: Net income (loss) attributable to non-controlling interests			62				(670	)
Net income attributable to Alere Inc. and Subsidiaries			215				14,829
Preferred stock dividends			(5,809	)			(5,853	)
Preferred stock repurchase			13,688				—
Net income available to common stockholders		$	8,094			$	8,976
Basic net income per common share attributable to Alere Inc. and Subsidiaries:
Income (loss) from continuing operations		$	0.09			$	(0.03	)
Income from discontinued operations, net of tax			—				0.14
Net income per common share		$	0.09			$	0.11
Diluted net income per common share attributable to Alere Inc. and Subsidiaries:
Income (loss) from continuing operations		$	0.09			$	(0.03	)
Income from discontinued operations, net of tax			—				0.14
Net income per common share		$	0.09			$	0.11
Weighted average shares-basic			85,362				83,806
Weighted average shares-diluted			86,953				83,806

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

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except par value)

		March 31,				December 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	318,666			$	401,306
Restricted cash			2,612				2,581
Marketable securities			980				2,094
Accounts receivable, net of allowances of $26,222 and $20,381 at March 31, 2011 and December 31, 2010, respectively			406,943				397,148
Inventories, net			251,841				257,720
Deferred tax assets			57,267				57,111
Income tax receivable			3,812				1,383
Receivable from joint venture, net			8,549				—
Prepaid expenses and other current assets			100,363				74,914
Total current assets			1,151,033				1,194,257
Property, plant and equipment, net			401,425				390,510
Goodwill			2,871,735				2,831,300
Other intangible assets with indefinite lives			28,091				28,183
Finite-lived intangible assets, net			1,673,098				1,707,581
Deferred financing costs, net, and other non-current assets			58,315				57,529
Receivable from joint venture, net of current portion			17,668				23,872
Investments in unconsolidated entities			63,388				62,556
Marketable securities			3,652				9,404
Deferred tax assets			25,637				25,182
Total assets		$	6,294,042			$	6,330,374
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	17,790			$	16,891
Current portion of capital lease obligations			2,200				2,126
Accounts payable			126,144				126,844
Accrued expenses and other current liabilities			322,374				345,832
Payable to joint venture, net			—				2,787
Deferred gain on joint venture			288,824				288,378
Total current liabilities			757,332				782,858
Long-term liabilities:
Long-term debt, net of current portion			2,382,280				2,378,566
Capital lease obligations, net of current portion			2,089				1,402
Deferred tax liabilities			413,714				420,166
Other long-term liabilities			168,594				169,656
Total long-term liabilities			2,966,677				2,969,790
Commitments and contingencies (Note 16)
Stockholders’ equity:
Series B preferred stock, $0.001 par value (liquidation preference: $771,674 at March 31, 2011 and $836,222 at December 31, 2010);
Authorized: 2,300 shares; Issued and outstanding: 1,929 shares at March 31, 2011 and 2,091 shares at December 31, 2010			661,175				718,554
Common stock, $0.001 par value;
Authorized: 200,000 shares; Issued and outstanding: 85,452 shares at March 31, 2011 and 84,904 shares at December 31, 2010			85				85
Additional paid-in capital			3,247,076				3,232,997
Accumulated deficit			(1,363,281	)			(1,377,184	)
Treasury stock, at cost, 41 shares at March 31, 2011 and 24 shares at December 31, 2010			(722	)			(104	)
Accumulated other comprehensive income			22,950				690
Total stockholders’ equity			2,567,283				2,575,038
Non-controlling interests			2,750				2,688
Total equity			2,570,033				2,577,726
Total liabilities and equity		$	6,294,042			$	6,330,374

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

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

		Three Months Ended March 31,
		2011				2010
Cash Flows from Operating Activities:
Net income		$	277			$	14,159
Income from discontinued operations, net of tax			—				11,946
Income from continuing operations			277				2,213
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Non-cash interest expense, including amortization of original issue discounts and write-off of deferred financing costs			3,603				3,292
Depreciation and amortization			94,975				89,248
Non-cash stock-based compensation expense			5,808				7,570
Impairment of inventory			294				195
Impairment of long-lived assets			230				(34	)
Impairment of intangible assets			2,935				—
Loss on sale of fixed assets			479				213
Gain on sales of marketable securities			(333	)			—
Equity earnings of unconsolidated entities, net of tax			(1,011	)			(4,040	)
Deferred income taxes			(13,238	)			(10,988	)
Other non-cash items			1,606				(2,681	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net			(5,339	)			8,759
Inventories, net			11,063				(10,415	)
Prepaid expenses and other current assets			(24,473	)			2,683
Accounts payable			(5,935	)			(8,845	)
Accrued expenses and other current liabilities			14,795				(9,112	)
Other non-current liabilities			1,424				2,238
Net cash provided by continuing operations			87,160				70,296
Net cash used in discontinued operations			—				(172	)
Net cash provided by operating activities			87,160				70,124
Cash Flows from Investing Activities:
Purchases of property, plant and equipment			(28,944	)			(17,286	)
Proceeds from sale of property, plant and equipment			204				166
Proceeds from disposition of business			11,490				—
Cash paid for acquisitions, net of cash acquired			(94,899	)			(338,384	)
Proceeds from sales of marketable securities			6,982				—
Net cash received from equity method investments			—				8,221
Increase in other assets			(12,102	)			(1,412	)
Net cash used in continuing operations			(117,269	)			(348,695	)
Net cash provided by discontinued operations			—				63,446
Net cash used in investing activities			(117,269	)			(285,249	)
Cash Flows from Financing Activities:
Decrease in restricted cash			3				161
Cash paid for financing costs			(80	)			(875	)
Cash paid for contingent purchase price consideration			(13,222	)			—
Proceeds from issuance of common stock, net of issuance costs			11,824				10,634
Repurchase of preferred stock			(49,380	)			—
Proceeds from long-term debt			937				—
Payments on long-term debt			(3,600	)			(2,437	)
Net proceeds (payments) under revolving credit facilities			133				(2,320	)
Repurchase of common stock			(618	)			—
Excess tax benefits on exercised stock options			1,169				1,421
Principal payments on capital lease obligations			(653	)			(252	)
Other			(244	)			(38	)
Net cash provided by (used in) financing activities			(53,731	)			6,294
Foreign exchange effect on cash and cash equivalents			1,200				(8,612	)
Net decrease in cash and cash equivalents			(82,640	)			(217,443	)
Cash and cash equivalents, beginning of period			401,306				492,773
Cash and cash equivalents, end of period		$	318,666			$	275,330

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

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 presentation. 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 and cash flows. Our audited consolidated financial statements for the year ended December 31, 2010 included information and footnotes necessary for such presentation and were included in our Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission, or SEC, on April 29, 2011. 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, 2010.

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

(2) Cash and Cash Equivalents

     We consider all highly-liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At March 31, 2011, our cash equivalents consisted of money market funds.

(3) Inventories

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

		March 31, 2011				December 31, 2010
Raw materials		$	75,618			$	81,640
Work-in-process			55,314				61,849
Finished goods			120,909				114,231
		$	251,841			$	257,720

(4) Stock-based Compensation

     We recorded stock-based compensation expense in our consolidated statements of operations for the three months ended March 31, 2011 and 2010, respectively, as follows (in thousands):

		Three Months Ended March 31,
		2011				2010
Cost of sales		$	350			$	407
Research and development			945				2,365
Sales and marketing			959				1,013
General and administrative			3,554				3,785
			5,808				7,570
Benefit for income taxes			(1,286	)			(1,421	)
Stock-based compensation, net of tax		$	4,522			$	6,149

(5) Net Income per Common Share

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

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

		Three Months Ended March 31,
		2011				2010
Numerator:
Income from continuing operations		$	277			$	2,213
Preferred stock dividends			(5,809	)			(5,853	)
Preferred stock repurchase			13,688				—
Income (loss) from continuing operations attributable to common shares			8,156				(3,640	)
Less: Net income (loss) attributable to non-controlling interest			62				(670	)
Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries			8,094				(2,970	)
Income from discontinued operations			—				11,946
Net income available to common stockholders		$	8,094			$	8,976
Denominator:
Weighted-average common shares outstanding — basic			85,362				83,806
Effect of dilutive securities:
Stock options			1,348				—
Warrants			136				—
Potentially issuable shares of common stock associated with contingent consideration arrangements			107				—
Weighted-average common shares outstanding — diluted			86,953				83,806
Net income per common share — basic:
Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries		$	0.09			$	(0.03	)
Income from discontinued operations			—				0.14
Net income per common share — basic		$	0.09			$	0.11
Net income per common share — diluted:
Income (loss) from continuing operations attributable to Alere Inc. and Subsidiaries		$	0.09			$	(0.03	)
Income from discontinued operations			—				0.14
Net income per common share — diluted		$	0.09			$	0.11

     For the three months ended March 31, 2011 and 2010, anti-dilutive shares of 14,877 and 17,390, respectively, were excluded from the computations of diluted net income per common share.

(6) Stockholders’ Equity

     (a) Preferred Stock

     For the three months ended March 31, 2011 and 2010, Series B preferred stock dividends amounted to $5.8 million and $5.9 million, respectively, which reduced earnings available to common stockholders for purposes of calculating net income per common share for each of the respective periods. As of April 15, 2011, payments have been made covering all dividend periods through March 31, 2011.

     (b) Share Repurchases

     In December 2010, our Board of Directors authorized the repurchase of up to $50.0 million of our common or preferred stock. During the first quarter of 2011, under this authorization we repurchased, in the open market and privately-negotiated transactions, 183,000 shares of our Series B preferred stock, which were convertible into approximately 1.1 million shares of our common stock, at a cost of approximately $49.4 million, which we paid in cash. Under this same authorization, we completed this repurchase program by repurchasing 16,700 shares of our common stock at a cost of approximately $0.6 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $269.84 per preferred share, an amount less than the weighted average fair value of the preferred shares at issuance, resulted in the allocation of $13.7 million of income attributable to common shareholders.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

     In March 2011, our Board of Directors authorized an additional repurchase of up to $50.0 million of our preferred or common stock.

(7) Comprehensive Income (Loss)

     The following table provides a reconciliation of net income reported in our consolidated financial statements to comprehensive income (loss) for the three months ended March 31, 2011 and 2010 (in thousands):

		Three Months Ended March 31,
		2011				2010
Net income attributable to Alere Inc. and subsidiaries		$	215			$	14,829
Other comprehensive income (loss), net of tax:
Changes in cumulative translation adjustment			21,515				(17,962	)
Unrealized losses on available for sale securities			(215	)			(241	)
Unrealized gains (losses) on interest rate swaps			988				(734	)
Minimum pension liability adjustment			(28	)			328
Total other comprehensive income (loss)			22,260				(18,609	)
Total comprehensive income (loss)		$	22,475			$	(3,780	)

     A summary of the changes in stockholders’ equity and non-controlling interest comprising total equity for the three months ended March 31, 2011 and 2010 is provided below (in thousands):

		Three Months Ended March 31,
		2011												2010
		Total				Non-								Total				Non-
		Stockholders’				controlling								Stockholders’				controlling
		Equity				Interest				Total Equity				Equity				Interest				Total Equity
Equity, beginning of period		$	2,575,038			$	2,688			$	2,577,726			$	3,527,555			$	1,334			$	3,528,889
Issuance of common stock and warrants in connection with acquisitions			1,000				—				1,000				—				—				—
Exercise of common stock options, warrants and shares issued under employee stock purchase plan			11,824				—				11,824				10,634				—				10,634
Repurchase of common stock			(618	)			—				(618	)			—				—				—
Repurchase of preferred stock			(49,380	)			—				(49,380	)			—				—				—
Preferred stock dividends			(33	)			—				(33	)			(51	)			—				(51	)
Stock-based compensation related to grants of common stock options			5,808				—				5,808				7,570				—				7,570
Excess tax benefits on exercised stock options			1,169				—				1,169				284				—				284
Non-controlling interest from acquisitions			—				—				—				—				19,454				19,454
Redeemable non-controlling interest in subsidiaries’ income			—				—				—				—				396				396
Net income (loss)			215				62				277				14,829				(670	)			14,159
Total other comprehensive income (loss)			22,260				—				22,260				(18,609	)			—				(18,609	)
Equity, end of period		$	2,567,283			$	2,750			$	2,570,033			$	3,542,212			$	20,514			$	3,562,726

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

(8) Business Combinations

     Acquisitions are accounted for using the acquisition method and the acquired companies’ results have been included in the accompanying consolidated financial statements from their respective dates of acquisition. During the three months ended March 31, 2011 and 2010, we expensed acquisition-related costs of $1.9 million and $4.0 million, respectively, in general and administrative expense.

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

     Allocation of the purchase price for acquisitions is based on estimates of the fair value of the net assets acquired and, for acquisitions completed within the past year, is subject to adjustment upon finalization of the purchase price allocation. We are not aware of any information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Determination of the estimated useful lives of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the shorter of the respective lives of the agreement or the period of time the assets are expected to contribute to future cash flows. We amortize our finite-lived intangible assets based on patterns on which the respective economic benefits are expected to be realized.

     (a) Acquisitions in 2011

     During 2011, we acquired the following businesses for a preliminary aggregate purchase price of $75.3 million, which consisted of cash payments totaling $64.1 million, 25,463 shares of our common stock with an acquisition date fair value of $1.0 million, contingent consideration obligations with an aggregate acquisition date fair value of $4.2 million and deferred purchase price consideration of $2.1 million.

•

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

•

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

•

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

•

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

     The operating results of BioNote and Bioeasy are included in our professional diagnostics reporting unit and business segment. The operating results of Pregnancy.org and Alere Connected Health are included in our health management reporting unit and business segment. Our consolidated statement of operations for the three months ended March 31, 2011 included revenue totaling approximately $3.0 million related to these businesses. Goodwill has been recognized in all of the acquisitions and amounted to approximately $41.9 million. Goodwill related to the acquisition of Pregnancy.org, which totaled $1.3 million, is expected to be deductible for tax purposes.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

     A summary of the preliminary aggregate purchase price allocation for the acquisitions consummated in 2011 is as follows (in thousands):

Current assets		$	13,326
Property, plant and equipment			4,913
Goodwill			41,862
Intangible assets			27,722
Other non-current assets			410
Total assets acquired			88,233
Current liabilities			6,108
Non-current liabilities			6,781
Total liabilities assumed			12,889
Net assets acquired			75,344
Less:
Previously-owned 10% investment in BioNote			3,937
Contingent consideration			4,242
Fair value of common stock issued			1,000
Deferred purchase price consideration			2,070
Cash paid		$	64,095

     The following are the intangible assets acquired and their respective amortizable lives (dollars in thousands):

						Weighted
						Average
		Amount				Useful Life
Core technology and patents		$	5,441			14.4 years
Database			64			3.0 years
Trademarks and trade names			4,748			16.7 years
Customer relationships			15,138			9.2 years
Non-compete agreements			425			3.9 years
Other			1,532			8.1 years
In-process research and development			374				N/A
Total intangible assets		$	27,722

     (b) Acquisitions in 2010

     During 2010, we acquired the following businesses for a preliminary aggregate purchase price of $602.5 million, which consisted of initial cash payments totaling $512.1 million, contingent consideration obligations with an acquisition date fair value of $89.7 million and deferred purchase price consideration with an acquisition date present value of $0.7 million.

	•		RMD Networks, Inc., or RMD, located in Denver, Colorado, a provider of clinical groupware software and services designed to improve communication and coordination of care among providers, patients, and payers in the healthcare environment (Acquired January 2010)
	•		certain assets of Streck, Inc., or Streck, located in Nebraska, a manufacturer of hematology, chemistry and immunology products for the clinical laboratory (Acquired January 2010)

•

Standard Diagnostics, headquartered in South Korea, a company that specializes in the medical diagnostics industry. Its main product lines relate to diagnostic reagents and devices for hepatitis, infectious diseases, tumor markers, fertility, drugs of abuse, urine strips and protein strips. (Initial controlling interest acquired February 2010)

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

•

Kroll Laboratory Specialists, Inc., subsequently renamed Alere Toxicology Services, or Alere Toxicology, headquartered in Gretna, Louisiana, a company that provides forensic quality substance abuse testing products and services across the United States (Acquired February 2010)

•

a privately-owned U.K. research and development operation (Acquired March 2010)

•

assets of the diagnostics division of Micropharm Ltd., located in Wales, United Kingdom, an expert in high-quality antibody production in sheep for both diagnostic and therapeutic purposes, providing antisera on a contract basis for U.K. and overseas companies and academic institutions, mainly for research, therapeutic and diagnostic uses (Acquired March 2010)

•

Quantum Diagnostics Group Limited, or Quantum, headquartered in Essex, England, an independent provider of drug testing products and services to healthcare professionals across the U.K. and Europe (Acquired April 2010)

•

assets of the workplace health division of Good Health Solutions Pty Ltd., subsequently renamed Alere Health Pty Ltd., located in East Sydney, Australia, an important player in the Australian health and wellness market, focusing on health screenings, health-related consulting services, health coaching and fitness instruction (Acquired April 2010)

•

certain assets of Unotech Diagnostics, Inc., or Unotech, located in California, a privately-owned company engaged in the development, formulation, manufacture, packaging, supply and distribution of our BladderCheck NMP22 lateral flow test and related lateral flow products (Acquired June 2010)

•

Scipac Holdings Limited, or Scipac, headquartered in Kent, England, a diagnostic reagent company with an extensive product portfolio supplying purified human antigens, recombinant proteins and disease state plasma to a global customer base (Acquired June 2010)

•

a privately-owned research and development operation, located in San Diego, California (Acquired July 2010)

•

Diagnostixx of California, Corp. (d/b/a Immunalysis Corporation), or Immunalysis, located in Pomona, California, a privately-owned manufacturer and marketer of abused and prescription drug screening solutions used by clinical reference and forensic/crime laboratories (Acquired August 2010)

•

AdnaGen AG, or AdnaGen, located in Langenhagen, Germany, a company that focuses on the development of innovative tumor diagnostics for the detection of rare cells (Acquired November 2010)

	•		Medlab Produtos Medicos Hospitalares Ltda, or Medlab, located in San Paulo, Brazil, a distributor of medical instruments and reagents to public and private laboratories throughout Brazil and Uruguay (Acquired December 2010)
	•		Capital Toxicology, LLC, or Capital Toxicology, located in Austin, Texas, a privately-held toxicology business specializing in pain management services (Acquired December 2010)

     The operating results of the acquired businesses mentioned above, except for RMD and Alere Health Pty Ltd., are included in our professional diagnostics reporting unit and business segment. The operating results of RMD and Alere Health Pty Ltd. are included in our health management reporting unit and business segment. Our consolidated statements of operations for the three months ended March 31, 2011 and 2010 included revenue totaling approximately $51.8 million and $16.1 million, respectively, related to these businesses. Goodwill has been recognized in all of the acquisitions, with the exception of Unotech and Streck, and amounted to approximately $280.6 million. Goodwill related to the acquisitions of Alere Toxicology and Capitol Toxicology, which totaled $63.7 million, is expected to be deductible for tax purposes.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

     A summary of the preliminary aggregate purchase price allocation for the acquisitions consummated in 2010 is as follows (in thousands):

Current assets		$	84,862
Property, plant and equipment			36,565
Goodwill			280,648
Intangible assets			283,855
Other non-current assets			16,988
Total assets acquired			702,918
Current liabilities			28,324
Non-current liabilities			72,050
Total liabilities assumed			100,374
Net assets acquired			602,544
Less:
Contingent consideration			89,708
Present value of deferred purchase price consideration			688
Cash paid		$	512,148

     The following are the intangible assets acquired and their respective amortizable lives (dollars in thousands):

						Weighted
						Average
		Amount				Useful Life
Core technology and patents		$	106,885			12.4 years
Quality systems			153			5.0 years
Database			654			3.0 years
Trademarks and trade names			11,654			6.3 years
License agreements			459			10.0 years
Customer relationships			125,332			14.3 years
Non-compete agreements			2,650			4.2 years
Software			5,000			7.0 years
Distribution agreement			800			14.0 years
Manufacturing know-how			3,683			10.5 years
In-process research and development			26,585				N/A
Total intangible assets		$	283,855

     (c) Restructuring Plans of Acquisitions

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

		Severance				Facility				Total Exit
		Related				And Other				Activities
Balance, December 31, 2010		$	339			$	3,020			$	3,359
Restructuring plan adjustments			(90	)			—				(90	)
Payments			—				(546	)			(546	)
Balance, March 31, 2011		$	249			$	2,474			$	2,723

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

     In connection with our acquisition of Matria in 2008, we implemented an integration plan to improve operating efficiencies and eliminate redundant costs resulting from the acquisition. The restructuring plan impacted all cost centers within the Matria organization, as activities were combined with our existing business operations. Since inception of the plan, we recorded $18.5 million in exit costs, of which $13.8 million relates to change in control and severance costs to involuntarily terminate employees and $4.7 million related to facility exit costs. As of March 31, 2011, $0.9 million in facility exit costs remain unpaid.

     In conjunction with our acquisition of Panbio in 2008, we formulated a restructuring plan to realize efficiencies and cost savings. In February 2008, we agreed upon a plan to close Panbio’s facility located in Columbia, Maryland. The manufacturing operation at the Maryland-based facility was transferred to a third-party manufacturer, the sales of the products at this facility were transferred to our shared services center in Orlando, Florida and the distribution operations were transferred to our distribution facility in Freehold, New Jersey. Since inception of the plan, we recorded $1.0 million in exit costs, including $0.8 million related to facility and other exit costs and $0.2 million related to severance costs to involuntarily terminated employees. As of March 31, 2011, $0.2 million in facility exit costs remain unpaid.

     During 2007, we formulated restructuring plans in connection with our acquisition of Cholestech Corporation, or Cholestech, consistent with our acquisition strategy to realize operating efficiencies and cost savings. Additionally, in March 2008, we announced plans to close the Cholestech facility in Hayward, California. We have transitioned the manufacturing of the related products to our facility in San Diego, California and have transitioned the sales and distribution of the products to our shared services center in Orlando, Florida. Since inception of the plans, we recorded $8.5 million in exit costs, of which $5.8 million relates to executive change in control agreements and severance costs to involuntarily terminate employees and $2.7 million relates to facility exit costs. During the first quarter of 2011, we determined that $0.1 million of change in control costs would not be incurred, thereby reducing the assumed liability and goodwill related to the Cholestech acquisition. As of March 31, 2011, $1.6 million in facility exit costs remain unpaid. See Note 9 for additional restructuring charges related to the Cholestech facility closure and integration.

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

     (d) Pro Forma Financial Information

     The following table presents selected unaudited financial information of our company, including Standard Diagnostics as if the acquisition of this entity had occurred on January 1, 2010. Pro forma results exclude adjustments for various other less significant acquisitions completed since January 1, 2010, as these acquisitions did not materially affect our results of operations.

     The pro forma results are derived from the historical financial results of the acquired businesses for the periods presented and are not necessarily indicative of the results that would have occurred had the acquisitions been consummated on January 1, 2010. There was no pro forma impact on the results of operations for the three months ended March 31, 2011, as the acquisition of Standard Diagnostics closed prior to January 1, 2011 (in thousands, except per share amounts).

		Three Months Ended
		March 31, 2010
Pro forma net revenue		$	521,407
Pro forma net loss from continuing operations attributable to Alere Inc. and Subsidiaries		$	(4,794	)
Pro forma net income available to common stockholders		$	7,152
Pro forma net loss from continuing operations attributable to Alere Inc. and Subsidiaries per common share — basic and diluted(1)		$	(0.06	)
Pro forma net income available to common stockholders — basic(1)		$	0.09
Pro forma net income available to common stockholders — diluted(1)		$	0.09

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

(9) Restructuring Plans

     The following table sets forth the aggregate charges associated with restructuring plans recorded in operating income for the three months ended March 31, 2011 and 2010 (in thousands):

		Three Months Ended March 31,
		2011				2010
Cost of net revenue		$	1,350			$	1,580
Research and development			18				(85	)
Sales and marketing			1,012				952
General and administrative			3,819				4,521
		$	6,199			$	6,968

     (a) 2011 Restructuring Plans

     In the first quarter of 2011, management executed additional plans to further reduce costs and improve efficiencies in our health management business segment, as well as cease operations at our GeneCare facility in Chapel Hill, North Carolina. As a result of these plans, we recorded $4.2 million in charges during the three months ended March 31, 2011, which included $1.3 million in severance costs related to several of our health management businesses and $2.9 million in intangible asset impairments related to our GeneCare operations. As of March 31, 2011, $1.2 million in severance costs remain unpaid. We anticipate incurring an additional $2.3 million in costs under these plans, primarily related to facility lease obligations.

     Additionally, during the first quarter of 2011, management executed several plans to reduce costs and improve operational efficiencies in our professional diagnostics business segment, including consolidation of operating activities among certain of our European subsidiaries. As a result of these plans, we recorded $1.6 million in charges during the three months ended March 31, 2011, which included $1.0 million in severance costs and $0.6 million in fixed asset and inventory impairments. We have $0.3 million in unpaid severance cost under these plans as of March 31, 2011. We do not anticipate incurring significant additional charges under these first quarter plans.

     (b) 2010 Restructuring Plans

     In 2010, management executed plans to reduce costs and improve efficiencies in our health management business segment. As a result of these plans, we recorded $5.5 million in charges during the three months ended March 31, 2010, which included $3.2 million in severance costs, $2.2 million in costs associated with facility exit costs and $0.1 million in present value accretion on facility exit costs, which was included in interest expense. Since inception of the plans, we recorded $7.5 million in charges, which included $4.6 million in severance costs, $2.5 million in costs associated with facility exit costs, $0.2 million in fixed asset impairments and $0.2 million in present value accretion on facility exit costs, which was included in interest expense. We have $1.9 million in severance and facility exit costs remaining to be paid as of March 31, 2011. We do not anticipate incurring significant additional charges under these plans.

     During 2010, management also executed several plans to reduce costs and improve efficiencies in our professional diagnostics business segment. As a result of these plans, during the three months ended March 31, 2011 and since inception, we recorded $0.1 million and $3.4 million, respectively, in charges. The $0.1 million related to various miscellaneous charges, and the $3.4 million included $2.4 million in severance costs, $0.8 million in facility and other exit costs and $0.2 million in fixed asset impairments. As of March 31, 2011, substantially all costs have been paid. We do not anticipate incurring significant additional charges under these plans.

     (c) 2008 Restructuring Plans

     In May 2008, we decided to close our facility located in Bedford, England and initiated steps to cease operations at this facility and transition the manufacturing operations principally to our manufacturing facilities in Shanghai

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

and Hangzhou, China. Based upon this decision, during the three months ended March 31, 2011 and 2010, we recorded $0.3 million and $0.6 million, respectively, in restructuring charges primarily related to transition costs. Of the $0.3 million and $0.5 million included in operating income for the three months ended March 31, 2011 and 2010, respectively, substantially all was charged to our professional diagnostics business segment.

     In addition to the restructuring charges discussed above, $0.4 million and $1.6 million of charges associated with the Bedford facility closure were borne by our 50/50 joint venture with P&G, or SPD, during the three months ended March 31, 2011 and 2010, respectively. Included in the $0.4 million of charges for the three months ended March 31, 2011 was $0.2 million in severance and transition costs and $0.2 million of fixed asset write-offs. Included in the $1.6 million of charges for the three months ended March 31, 2010 was $1.0 million in severance and retention costs, $1.0 million in transition costs and a $0.4 million reduction in inventory reserves. Of these restructuring charges, 50%, or $0.2 million and $0.8 million, has been included in equity earnings of unconsolidated entities, net of tax, in our consolidated statements of operations for the three months ended March 31, 2011 and 2010, respectively. Of the total exit costs incurred jointly with SPD under this plan, $0.4 million in costs remain unpaid as of March 31, 2011.

     Since inception of the plan, we recorded $17.2 million in restructuring charges, including $5.9 million of fixed asset and inventory impairments, $4.6 million related to the acceleration of facility restoration costs and early termination lease penalties, $4.1 million in severance costs, $3.2 million in transition costs and $0.6 million related to a pension plan curtailment gain associated with the Bedford employees being terminated. SPD has been allocated $31.3 million in restructuring charges since the inception of the plan, including $9.3 million of fixed asset and inventory impairments, $11.4 million in severance and retention costs, $2.9 million in early termination lease penalties, $7.1 million in facility exit costs and $0.6 million related to the acceleration of facility exit costs. We anticipate incurring additional costs of approximately $1.0 million related to the closure of this facility, primarily related to severance and transition costs, through the end of 2011. Of these additional anticipated costs, approximately $0.8 million will be borne by SPD and $0.2 million will be borne by us and will be included primarily in our professional diagnostics business segment.

     As a result of our plans to transition the businesses of Cholestech and HemoSense, Inc., or HemoSense, to our San Diego, California facility and Panbio to Orlando, Florida and close these facilities, we incurred $0.7 million in restructuring charges related to our professional diagnostics business segment for the three months ended March 31, 2010, of which $0.3 million relates to severance and retention costs and $0.4 million in transition costs. Since the inception of the plan, we incurred $14.6 million in restructuring charges, of which $4.5 million relates to severance and retention costs, $3.4 million in fixed asset impairments, $4.6 million in transition costs, $1.6 million in inventory write-offs and $0.5 million in present value accretion of facility lease costs related to these plans. As of March 31, 2011, $0.5 million in facility exit costs remains unpaid. We do not anticipate incurring significant additional restructuring charges under these plans.

(10) Long-term Debt

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

		March 31, 2011				December 31, 2010
First Lien Credit Agreement — Term loans		$	938,813			$	941,250
Second Lien Credit Agreement			250,000				250,000
3% Senior subordinated convertible notes			150,000				150,000
9% Senior subordinated notes			390,059				389,686
7.875% Senior notes			244,966				244,756
8.625% Senior subordinated notes			400,000				400,000
Lines-of-credit			4,178				4,405
Other			22,054				15,360
			2,400,070				2,395,457
Less: Current portion			(17,790	)			(16,891	)
		$	2,382,280			$	2,378,566

     In connection with our significant long-term debt issuances, we recorded interest expense, including amortization of deferred financing costs and original issue discounts, in our consolidated statements of operations for the three months ended March 31, 2011 and 2010, respectively, as follows (in thousands):

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

		Three Months Ended March 31,
		2011				2010
Secured credit facilities		$	12,054			$	15,675
3% Senior subordinated convertible notes			1,246				1,246
9% Senior subordinated notes			9,730				9,695
7.875% Senior notes			5,365				5,142
8.625% Senior subordinated notes			8,908				—
		$	37,303			$	31,758

     In August 2007, we entered into interest rate swap contracts, with an effective date of September 28, 2007, that had a total notional value of $350.0 million and an original maturity date of September 28, 2010. These interest rate swap contracts paid us variable interest at the three-month LIBOR rate, and we paid the counterparties a fixed rate of 4.85%. In March 2009, we extended our August 2007 interest rate hedge for an additional two-year period commencing in September 2010 at a one-month LIBOR rate of 2.54%. These interest rate swap contracts were entered into to convert $350.0 million of the $1.2 billion variable rate term loans under the secured credit facilities into fixed rate debt.

     In January 2009, we entered into interest rate swap contracts, with an effective date of January 14, 2009, that had a total notional value of $500.0 million and a maturity date of January 5, 2011. These interest rate swap contracts paid us variable interest at the one-month LIBOR rate, and we paid the counterparties a fixed rate of 1.195%. These interest rate swap contracts were entered into to convert $500.0 million of the $1.2 billion variable rate term loan under the secured credit facility into fixed rate debt. We did not extend the terms of these interest rate swap contracts after January 5, 2011.

(11) Derivative Financial Instruments

     We use derivative financial instruments (interest rate swap contracts) in the management of our interest rate exposure related to our secured credit facilities. We do not hold or issue derivative financial instruments for speculative purposes.

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

				Fair Value at				Fair Value at
Derivative Instruments		Balance Sheet Caption		March 31, 2011				December 31, 2010
Interest rate swap contracts(1)		Accrued expenses and other current liabilities		$	—			$	26
Interest rate swap contracts(1)		Other long-term liabilities		$	10,363			$	11,954

				Amount of				Amount of
				Gain Recognized				Loss Recognized
				During the Three				During the Three
		Location of Gain (Loss)		Months Ended				Months Ended
Derivative Instruments		Recognized in Income		March 31, 2011				March 31, 2010
Interest rate swap contracts(1)		Other comprehensive income (loss)		$	1,617			$	(1,201	)

(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.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

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

Level 1		Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets and liabilities include investments in marketable securities.
Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 liabilities include interest rate swap contracts.
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of the contingent consideration obligations related to our acquisitions completed after January 1, 2009 are valued using Level 3 inputs.

     The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

						Quoted Prices in				Significant Other
		March 31,				Active Markets				Observable Inputs				Unobservable Inputs
Description		2011				(Level 1)				(Level 2)				(Level 3)
Assets:
Marketable securities		$	4,632			$	4,632			$	—			$	—
Total assets		$	4,632			$	4,632			$	—			$	—
Liabilities:
Interest rate swap liability (1)		$	10,363			$	—			$	10,363			$	—
Contingent consideration obligations (2)			125,352				—				—				125,352
Total liabilities		$	135,715			$				$	10,363			$	125,352

						Quoted Prices in				Significant Other
		December 31,				Active Markets				Observable Inputs				Unobservable Inputs
Description		2010				(Level 1)				(Level 2)				(Level 3)
Assets:
Marketable securities		$	11,948			$	11,948			$	—			$	—
Total assets		$	11,948			$	11,948			$	—			$	—
Liabilities:
Interest rate swap liability (1)		$	11,980			$	—			$	11,980			$	—
Contingent consideration obligations (2)			132,879				—				—				132,879
Total liabilities		$	144,859			$	—			$	11,980			$	132,879

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

     Changes in the fair value of our Level 3 contingent consideration obligations during the three months ended March 31, 2011 were as follows (in thousands):

Fair value of contingent consideration obligations, December 31, 2010		$	132,879
Acquisition date fair value of contingent consideration obligations recorded			4,242
Payments			(13,222	)
Adjustments, net (income) expense			1,453
Fair value of contingent consideration obligations, March 31, 2011		$	125,352

     At March 31, 2011 and December 31, 2010, 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 the estimated fair value of our long-term debt were $2.4 billion and $2.5 billion, respectively, at March 31, 2011. The carrying amount and the estimated fair value of our long-term debt were $2.4 billion each at December 31, 2010. The estimated fair value of our long-term debt was determined using market sources that were derived from available market information 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 March 31,
		2011				2010
Service cost		$	—			$	—
Interest cost			202				159
Expected return on plan assets			(155	)			(111	)
Amortization of prior service cost			106				—
Realized losses			—				—
Net periodic benefit cost		$	153			$	48

(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. Our reportable operating segments are Professional Diagnostics, Health Management, Consumer Diagnostics and Corporate and Other. Our operating results include license and royalty revenue which is 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 months ended March 31, 2011 and 2010 is as follows (in thousands):

														Corporate
		Professional				Health				Consumer				and
		Diagnostics				Management				Diagnostics				Other				Total
Three months ended March 31, 2011:
Net revenue to external customers		$	415,812			$	143,063			$	23,589			$	—			$	582,464
Operating income (loss)		$	60,262			$	(11,933	)		$	3,361			$	(20,785	)		$	30,905
Depreciation and amortization		$	65,249			$	28,314			$	1,259			$	153			$	94,975
Restructuring charge		$	1,978			$	4,221			$	—			$	—			$	6,199
Stock-based compensation		$	—			$	—			$	—			$	5,808			$	5,808
Three months ended March 31, 2010:
Net revenue to external customers		$	340,393			$	148,532			$	26,329			$	—			$	515,254
Operating income (loss)		$	51,474			$	(9,001	)		$	2,378			$	(16,141	)		$	28,710
Depreciation and amortization		$	57,844			$	29,930			$	1,327			$	147			$	89,248
Restructuring charge		$	1,489			$	5,434			$	45			$	—			$	6,968
Stock-based compensation		$	—			$	—			$	—			$	7,570			$	7,570
Assets:
As of March 31, 2011		$	4,942,767			$	998,680			$	202,484			$	150,111			$	6,294,042
As of December 31, 2010		$	4,913,491			$	1,011,183			$	207,795			$	197,905			$	6,330,374

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

(15) Related Party Transactions

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

     We had a net receivable from the joint venture of $8.5 million and a net payable to the joint venture of $2.8 million as of March 31, 2011 and December 31, 2010, respectively. Included in the $8.5 million receivable balance as of March 31, 2011 is approximately $8.3 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $17.7 million and $23.9 million as of March 31, 2011 and December 31, 2010, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the joint venture was completed have been classified as other receivables within prepaid and other current assets on our accompanying consolidated balance sheets in the amount of $8.2 million and $7.8 million as of March 31, 2011 and December 31, 2010, 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 $16.3 million and $18.0 million during the three months ended March 31, 2011 and 2010, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million during both the three months ended March 31, 2011 and 2010. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our accompanying consolidated statements of operations.

     Under the terms of our product supply agreement, the joint venture purchases products from our manufacturing facilities in the U.K. and China. The joint venture in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, the tests are sold to P&G for distribution to third-party customers in North America. As a result of these related transactions, we have recorded $6.7 million and $7.0 million of trade receivables which are included in accounts receivable on our accompanying consolidated balance sheets as of March 31, 2011 and December 31, 2010, respectively, and $17.6 million and $20.5 million of trade accounts payable which are included in accounts payable on our accompanying consolidated balance sheets as of March 31, 2011 and December 31, 2010, respectively.

(16) Commitments and Contingencies

     (a) Legal Proceedings

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

     (b) Acquisition-related Contingent Consideration Obligations

     We have contractual contingent consideration obligations related to our acquisitions of Accordant, AdnaGen, Alere Connected Health, Bioeasy, Capital Toxicology, Free & Clear, Immunalysis, JSM, Medlab, Mologic,

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

Tapestry now known as Alere Home Monitoring, Inc., or Alere Home Monitoring, a privately-owned research and development operation, a privately-owned U.K. research and development operation, a privately-owned health management business acquired in 2008 and certain other small businesses.

     (i) Acquisitions completed prior to January 1, 2009

•

Privately-owned health management business

     With respect to a privately-owned health management business which we acquired in 2008, the terms of the acquisition agreement provide for contingent consideration payable upon successfully meeting certain revenue and EBITDA targets. The final earn-out was achieved during the fourth quarter of 2010, resulting in an accrual of approximately €23.9 million ($31.8 million). Cash payment totaling €24.1 million ($34.0 million) was made during the first quarter of 2011.

     (ii) Acquisitions completed on or after January 1, 2009

•

Accordant

     With respect to Accordant, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and cash collection targets starting after the second anniversary of the acquisition date and completed prior to the third anniversary date of the acquisition. The maximum amount of the earn-out payment is $6.0 million and, if earned, payment is expected to be made during 2012 and 2013.

•

AdnaGen

     With respect to AdnaGen, the terms of the acquisition agreement require us to pay earn-outs upon successfully (i) meeting certain financial performance targets during the two years following the acquisition; (ii) achieving multiple product development milestones during the three years following the acquisition and (iii) creating pharmaceutical alliances during the six years following the acquisition. The maximum amount of the earn-out payments is approximately $63.0 million.

•

Alere Connected Health

     With respect to Alere Connected Health, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain EBIT targets during calendar years 2011 through 2013. The maximum amount of the earn-out payments is £9.0 million (approximately $14.5 million).

•

Bioeasy

     With respect to Bioeasy, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain revenue and EBITDA targets during each of the calendar years 2011 through 2013. The maximum amount of the earn-out payments is approximately $7.5 million.

•

Capital Toxicology

     With respect to Capital Toxicology, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain EBITDA targets during each of the calendar years 2011 and 2012. The maximum amount of the earn-out payments is approximately $16.0 million.

•

Free & Clear

     With respect to Free & Clear, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during fiscal year 2010. A payment of approximately $11.5 million was made during the second quarter of 2011 which was accrued as of March 31, 2011.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

•

Immunalysis

     With respect to Immunalysis, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain gross profit targets during each of the calendar years 2010 through 2012. The maximum remaining amount of the earn-out payments is approximately $5.7 million.

•

JSM

     With respect to JSM, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and operating income targets during each of the calendar years 2010 through 2012. The 2010 portion of the earn-out totaling approximately $0.6 million was earned as of December 31, 2010. Payment of the 2010 earn-out is expected to be made during the second quarter of 2011. The maximum remaining amount of the earn-out payments is approximately $2.4 million.

•

Medlab

     With respect to Medlab, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during each of the calendar years 2011 through 2016. The maximum amount of the earn-out payments is approximately $10.2 million.

•

Mologic

     With respect to Mologic, the terms of the acquisition agreement require us to pay earn-outs, in shares of our common stock, upon successfully meeting four research and development project milestones during the four years following the acquisition. A portion of the earn-out was achieved during the fourth quarter of 2010, resulting in an accrual of approximately $3.9 million. Payment of this portion of the earn-out is expected to be made during the second quarter of 2011. The maximum remaining amount of the earn-out payments is $15.0 million, which will be paid in shares of our common stock.

•

Alere Home Monitoring

     With respect to Alere Home Monitoring, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during each of the calendar years 2010 and 2011. Cash payment for the 2010 portion of the earn-out totaling $12.7 million was paid during the first quarter of 2011. The maximum remaining amount of the earn-out payments is $12.3 million which, if earned, will be paid in shares of our common stock.

•

Privately-owned research and development operation

     With respect to our acquisition of a privately-owned research and development operation, 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. The maximum amount of the earn-out payments is $57.5 million.

•

Privately-owned U.K. research and development operation

     With respect to our acquisition of a privately-owned U.K. research and development operation, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets. The maximum amount of the earn-out payments is $125.0 million and, if earned, payments are expected to be made during the eight-year period following the acquisition date, but could extend thereafter.

     (c) Contingent Obligations

•

Agreements with Epocal

     In November 2009, we entered into a distribution agreement with Epocal, Inc., or Epocal, to distribute the epoc^® Blood Analysis System for blood gas and electrolyte testing for $20.0 million, which is recorded on our accompanying consolidated balance sheet in other intangible assets, net. We also entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal for a total potential purchase price of up to

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

$255.0 million, including a base purchase price of up to $172.5 million if Epocal achieves certain gross margin and other financial milestones on or prior to October 31, 2014, plus additional payments of up to $82.5 million if Epocal achieves certain other milestones relating to its gross margin and product development efforts on or prior to this date. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones. The acquisition will also be subject to other closing conditions, including the receipt of any required antitrust or other approvals. In April 2011, we entered into a license agreement with Epocal and amended some of the terms of the definitive agreement to acquire Epocal. The license agreement provides Alere with royalty-free access to certain Epocal intellectual property for use in Alere home-use products and provided for an upfront license payment of $18.0 million, of which $12.0 million was paid in April 2011, $3.0 million will be paid in June 2011 and $3.0 million will be paid in September 2011. The amendment of the definitive agreement increased the working capital target by $18.0 million. The amendment of the agreement also added an additional potential milestone payment of $8.0 million. As a result, the maximum purchase price under the acquisition agreement increased to $263.0 million.

•

Option agreement with P&G

     In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G has the right, for a period of 60 days commencing on May 17, 2011, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G has the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. No gain on the proceeds that we received from P&G through the formation of SPD will be recognized in our financial statements until P&G’s option to require us to purchase its interest in SPD expires. If P&G chooses to exercise its option, the deferred gain carried on our books would be reversed in connection with the repurchase transaction. As of March 31, 2011 and December 31, 2010, the deferred gain of $288.8 million and $288.4 million, respectively, is presented as a current liability on our accompanying consolidated balance sheets.

(17) Recent Accounting Pronouncements

     From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position, results of operations or cash flows upon adoption.

Recently Adopted Standards

     Effective January 1, 2011, we adopted Accounting Standards Update, or ASU, No. 2009-13, Revenue Recognition (Topic 650): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB EITF, or ASU 2009-13. ASU 2009-13 will separate multiple-deliverable revenue arrangements. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The amendments of this update will replace the term “fair value” in the revenue allocation guidance with “selling price” to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. The amendments of this update will eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The amendments in this update will require that a vendor determine its best estimated selling price in a manner consistent with that used to determine the price to sell the deliverable on a standalone basis. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

(18) Equity Investments

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

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

(a)

SPD

     In May 2007, we completed the formation of SPD, our 50/50 joint venture with P&G, for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form the joint venture, we ceased to consolidate the operating results of our consumer diagnostics business related to the joint venture. For the three months ended March 31, 2011 and 2010, we recorded earnings of $0.4 million and $3.6 million, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods.

(b)

TechLab

     In May 2006, we acquired 49% of TechLab, Inc., or TechLab, a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic associated diarrhea and parasitology. For three months ended March 31, 2011 and 2010, we recorded earnings of $0.5 million and $0.6 million, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective periods.

     Summarized financial information for the P&G joint venture and TechLab on a combined basis is as follows (in thousands):

Combined Condensed Results of Operations:

		Three Months Ended March 31,
		2011				2010
Net revenue		$	55,554			$	61,254
Gross profit		$	35,465			$	36,112
Net income after taxes		$	1,834			$	8,398

Combined Condensed Balance Sheets:

		March 31, 2011				December 31, 2010
Current assets		$	94,515			$	93,250
Non-current assets			26,954				25,965
Total assets		$	121,469			$	119,215
Current liabilities		$	59,218			$	62,788
Non-current liabilities			2,371				2,091
Total liabilities		$	61,589			$	64,879

(19) Discontinued Operations

     On January 15, 2010, we completed the sale of our vitamins and nutritional supplements business for a purchase price of approximately $62.6 million in cash, which is net of the final working capital adjustment. The sale included our entire private label and branded nutritional businesses and represents the complete divestiture of our entire vitamins and nutritional supplements business segment. We recognized a gain of approximately $18.7 million ($11.6 million, net of tax) during 2010. The results of the vitamins and nutritional supplements business, which represents our entire vitamins and nutritional supplements business segment, are included in income from discontinued operations, net of tax, in our consolidated financial statements.

     The following summarized financial information related to the vitamins and nutritional supplements businesses has been segregated from continuing operations and reported as discontinued operations through the date of disposition (amounts in thousands).

		Three Months Ended
		March 31, 2010
Net revenue		$	4,362
Income from discontinued operations before income taxes		$	19,429
Provision for income taxes			7,483
Income from discontinued operations, net of taxes		$	11,946

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

(20) Guarantor Financial Information

     Our 9% senior subordinated notes due 2016, our 7.875% senior notes due 2016 and our 8.625% senior subordinated notes due 2018 are guaranteed by certain of our consolidated, wholly-owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, balance sheets as of March 31, 2011 and December 31, 2010, the statements of operations for the three months ended March 31, 2011 and 2010 and cash flows for the three months ended March 31, 2011 and 2010 for the Company, the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of the Company 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.

ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2011
(in thousands)

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net product sales		$	—			$	237,976			$	199,970			$	(30,703	)		$	407,243
Services revenue			—				151,525				16,027				—				167,552
Net product sales and services revenue			—				389,501				215,997				(30,703	)			574,795
License and royalty revenue			—				2,551				6,556				(1,438	)			7,669
Net revenue			—				392,052				222,553				(32,141	)			582,464
Cost of net product sales			770				107,162				112,135				(30,380	)			189,687
Cost of services revenue			—				78,535				6,181				—				84,716
Cost of net product sales and services revenue			770				185,697				118,316				(30,380	)			274,403
Cost of license and royalty revenue			—				—				3,292				(1,438	)			1,854
Cost of net revenue			770				185,697				121,608				(31,818	)			276,257
Gross profit (loss)			(770	)			206,355				100,945				(323	)			306,207
Operating expenses:
Research and development			4,741				18,602				13,199				—				36,542
Sales and marketing			651				82,859				49,699				—				133,209
General and administrative			14,046				60,975				30,530				—				105,551
Total operating expenses			19,438				162,436				93,428				—				275,302
Operating income (loss)			(20,208	)			43,919				7,517				(323	)			30,905
Interest expense, including amortization of original issue discounts and deferred financing costs			(37,660	)			(16,126	)			(4,368	)			19,849				(38,305	)
Other income (expense), net			19,587				(2,368	)			4,966				(19,849	)			2,336
Income (loss) from continuing operations before provision (benefit) for income taxes			(38,281	)			25,425				8,115				(323	)			(5,064	)
Provision (benefit) for income taxes			(18,944	)			11,924				2,815				(125	)			(4,330	)
Income (loss) from continuing operations before equity earnings of unconsolidated entities, net of tax			(19,337	)			13,501				5,300				(198	)			(734	)
Equity in earnings of subsidiaries, net of tax			19,146				—				—				(19,146	)			—
Equity earnings of unconsolidated entities, net of tax			468				—				490				53				1,011
Net income (loss)			277				13,501				5,790				(19,291	)			277
Less: Net income attributable to non-controlling interests			—				—				62				—				62
Net income (loss) attributable to Alere Inc. and Subsidiaries			277				13,501				5,728				(19,291	)			215
Preferred stock dividends			(5,809	)			—				—				—				(5,809	)
Preferred stock repurchase			13,688				—				—				—				13,688
Net income (loss) available to common stockholders		$	8,156			$	13,501			$	5,728			$	(19,291	)		$	8,094