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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, 2014

OR

 

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 001-16789

 

 

 

LOGO

ALERE INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   04-3565120

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices)(Zip code)

(781) 647-3900

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of August 4, 2014 was 83,086,480.

 

 

 


Table of Contents

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended June 30, 2014

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, 2013 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, 2014 and 2013

     3   
 

b) Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June  30, 2014 and 2013

     4   
 

c) Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013

     5   
 

d) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013

     6   
 

e) Notes to Consolidated Financial Statements

     7   

Item 2.

 

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

     34   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     45   

Item 4.

 

Controls and Procedures

     45   

PART II. OTHER INFORMATION

     45   

Item 6.

 

Exhibits

     46   

SIGNATURE

     47   

 

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,  
     2014     2013     2014     2013  

Net product sales

   $ 503,425      $ 521,562      $ 998,870      $ 1,029,838   

Services revenue

     227,914        237,558        443,879        464,467   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     731,339        759,120        1,442,749        1,494,305   

License and royalty revenue

     6,604        4,865        11,816        8,929   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     737,943        763,985        1,454,565        1,503,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     274,488        253,189        520,600        506,267   

Cost of services revenue

     122,412        124,810        240,144        244,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     396,900        377,999        760,744        751,235   

Cost of license and royalty revenue

     1,125        1,499        2,664        3,255   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     398,025        379,498        763,408        754,490   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     339,918        384,487        691,157        748,744   

Operating expenses:

        

Research and development

     37,430        40,500        76,129        81,954   

Sales and marketing

     150,663        159,422        297,727        315,878   

General and administrative

     159,946        140,161        299,482        276,019   

Loss on disposition

     638        —          638        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (8,759     44,404        17,181        74,893   

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

     (52,151     (92,453     (104,195     (149,852

Other income (expense), net

     2,619        1,063        7,341        593   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision (benefit) for income taxes

     (58,291     (46,986     (79,673     (74,366

Provision (benefit) for income taxes

     (6,611     17,867        (16,528     (19,004
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity earnings of unconsolidated entities, net of tax

     (51,680     (64,853     (63,145     (55,362

Equity earnings of unconsolidated entities, net of tax

     2,087        4,551        7,439        7,485   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (49,593     (60,302     (55,706     (47,877

Less: Net income attributable to non-controlling interests

     62        267        170        242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Alere Inc. and Subsidiaries

     (49,655     (60,569     (55,876     (48,119

Preferred stock dividends

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

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (54,964   $ (65,878   $ (66,435   $ (58,678
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.67   $ (0.81   $ (0.81   $ (0.72
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares-basic and diluted

     82,648        81,311        82,518        81,255   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Net loss

   $ (49,593   $ (60,302   $ (55,706   $ (47,877
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

        

Changes in cumulative translation adjustment

     37,815        (34,428     26,475        (109,783

Unrealized losses on available for sale securities

     —          —          (17     —     

Unrealized gains on hedging instruments

     6        —          14        11   

Minimum pension liability adjustment

     (87     99        (13     704   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     37,734        (34,329     26,459        (109,068

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

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     37,734        (34,329     26,459        (109,068
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (11,859     (94,631     (29,247     (156,945

Less: Comprehensive income attributable to non-controlling interests

     62        267        170        242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Alere Inc. and Subsidiaries

   $ (11,921   $ (94,898   $ (29,417   $ (157,187
  

 

 

   

 

 

   

 

 

   

 

 

 

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, 2014     December 31, 2013  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 398,802      $ 361,908   

Restricted cash

     10,268        6,373   

Marketable securities

     802        858   

Accounts receivable, net of allowances of $82,843 and $76,643 at June 30, 2014 and December 31, 2013, respectively

     537,605        548,729   

Inventories, net

     368,153        364,185   

Deferred tax assets

     63,094        60,689   

Prepaid expenses and other current assets

     126,602        129,672   
  

 

 

   

 

 

 

Total current assets

     1,505,326        1,472,414   

Property, plant and equipment, net

     541,873        545,164   

Goodwill

     3,113,367        3,093,691   

Other intangible assets with indefinite lives

     52,351        56,702   

Finite-lived intangible assets, net

     1,567,850        1,684,611   

Restricted cash

     28,886        29,370   

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

     79,165        84,073   

Investments in unconsolidated entities

     91,503        86,830   

Deferred tax assets

     8,008        7,959   

Non-current income tax receivable

     2,336        —     
  

 

 

   

 

 

 

Total assets

   $ 6,990,665      $ 7,060,814   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

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

   $ 63,757      $ 49,112   

Current portion of capital lease obligations

     5,739        6,855   

Accounts payable

     217,927        187,371   

Accrued expenses and other current liabilities

     381,694        429,848   
  

 

 

   

 

 

 

Total current liabilities

     669,117        673,186   
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of current portion

     3,724,009        3,772,788   

Capital lease obligations, net of current portion

     13,825        14,407   

Deferred tax liabilities

     293,150        329,249   

Other long-term liabilities

     221,782        188,336   
  

 

 

   

 

 

 

Total long-term liabilities

     4,252,766        4,304,780   
  

 

 

   

 

 

 

Commitments and contingencies (Note 16)

    

Stockholders’ equity:

    

Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at June 30, 2014 and December 31, 2013); Authorized: 2,300 shares; Issued: 2,065 shares at June 30, 2014 and December 31, 2013; Outstanding: 1,774 shares at June 30, 2014 and December 31, 2013

     606,468        606,468   

Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 90,462 shares at June 30, 2014 and 89,666 shares at December 31, 2013; Outstanding: 82,783 shares at June 30, 2014 and 81,987 shares at December 31, 2013

     90        90   

Additional paid-in capital

     3,334,349        3,319,168   

Accumulated deficit

     (1,692,103     (1,636,227

Treasury stock, at cost, 7,679 shares at June 30, 2014 and December 31, 2013

     (184,971     (184,971

Accumulated other comprehensive loss

     (103     (26,562
  

 

 

   

 

 

 

Total stockholders’ equity

     2,063,730        2,077,966   

Non-controlling interests

     5,052        4,882   
  

 

 

   

 

 

 

Total equity

     2,068,782        2,082,848   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 6,990,665      $ 7,060,814   
  

 

 

   

 

 

 

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,  
     2014     2013  

Cash Flows from Operating Activities:

    

Net loss

   $ (55,706   $ (47,877

Adjustments to reconcile net loss to net cash provided by operating activities:

    

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

     8,136        10,176   

Depreciation and amortization

     195,976        213,904   

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

     —          1,172   

Non-cash stock-based compensation expense

     4,582        8,800   

Impairment of inventory

     589        26   

Impairment of long-lived assets

     1,491        2,815   

Loss on disposition of fixed assets

     4,271        1,301   

Equity earnings of unconsolidated entities, net of tax

     (7,439     (7,485

Deferred income taxes

     (42,323     (44,052

Loss on extinguishment of debt

     —          35,603   

Loss on disposition

     638        —     

Bargain purchase gain

     —          (8,062

Other non-cash items

     (6,116     7,335   

Changes in assets and liabilities, net of acquisitions:

    

Accounts receivable, net

     13,227        (38,326

Inventories, net

     (15,356     (52,104

Prepaid expenses and other current assets

     1,418        (3,319

Accounts payable

     30,774        11,850   

Accrued expenses and other current liabilities

     (14,619     32,861   

Other non-current liabilities

     25,829        (17,844

Cash paid for contingent consideration

     (20,205     (8,015
  

 

 

   

 

 

 

Net cash provided by operating activities

     125,167        98,759   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Increase in restricted cash

     (3,894     (6,843

Purchases of property, plant and equipment

     (54,430     (64,617

Proceeds from sale of property, plant and equipment

     494        4,640   

Cash received from dispositions

     5,454        —     

Cash paid for business acquisitions, net of cash acquired

     (75     (165,963

Cash received from investments

     201        10,574   

Cash received from sales of marketable securities

     39        —     

Decrease in other assets

     1,038        17,013   
  

 

 

   

 

 

 

Net cash used in investing activities

     (51,173     (205,196
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash paid for financing costs

     (5     (9,018

Cash paid for contingent purchase price consideration

     (15,769     (26,638

Proceeds from issuance of common stock, net of issuance costs

     21,121        7,772   

Proceeds from issuance of long-term debt

     940        435,467   

Payments on long-term debt

     (32,242     (437,816

Proceeds from issuance of short-term debt

     806        —     

Net proceeds under revolving credit facilities

     111        166,540   

Cash paid for dividends

     (10,646     (10,646

Excess tax benefits on exercised stock options

     415        166   

Principal payments on capital lease obligations

     (3,481     (3,488

Other

     —          (18,953
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (38,750     103,386   
  

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     1,650        (4,748
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     36,894        (7,799

Cash and cash equivalents, beginning of period

     361,908        328,346   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 398,802      $ 320,547   
  

 

 

   

 

 

 

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, 2013 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 March 3, 2014. 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, 2013.

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.

During the six months ended June 30, 2014, we recorded net after-tax expense charges of $1.3 million to correct prior period items, including a net after-tax charge of $2.8 million related to the fair value of the MedApps Holding Company, Inc., or MedApps, contingent consideration obligations. We consider the adjustments to be immaterial to both the prior period and the current period financial statements.

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

(2) Cash and Cash Equivalents

We consider all highly-liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At June 30, 2014, our cash equivalents consisted of money market funds.

(3) Restricted Cash

We had restricted cash of $39.2 million and $35.7 million as of June 30, 2014 and December 31, 2013, respectively. $28.9 million and $29.4 million of our restricted cash as of June 30, 2014 and December 31, 2013, respectively, was classified as non-current on our Consolidated Balance Sheet, as it secures a foreign bank loan arrangement that we entered into during the third quarter of 2013 and, under the terms of the loan agreement, is required to remain on deposit for two years.

(4) 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, 2014      December 31, 2013  

Raw materials

   $ 123,914       $ 118,571   

Work-in-process

     74,260         79,559   

Finished goods

     169,979         166,055   
  

 

 

    

 

 

 
   $ 368,153       $ 364,185   
  

 

 

    

 

 

 

 

7


Table of Contents

(5) Stock-based Compensation

We recorded stock-based compensation expense in our Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, respectively, as follows (in thousands):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Cost of net revenue

   $ 285      $ 278      $ 572      $ 510   

Research and development

     (1,811     783        (620     1,530   

Sales and marketing

     967        906        1,858        1,622   

General and administrative

     (563     2,710        2,772        5,138   
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,122     4,677        4,582        8,800   

Provision (benefit) for income taxes

     655        (496     (1,123     (1,358
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (467   $ 4,181      $ 3,459      $ 7,442   
  

 

 

   

 

 

   

 

 

   

 

 

 

In connection with the departure of three of our senior executives, we recorded a reversal of stock-based compensation expense in the amount of $5.6 million during the three months and six months ended June 30, 2013, relating to the impact on their prior stock option awards upon their resignations. Of the $5.6 million reversal, $2.2 million was recorded through research and development and $3.4 million through general and administrative.

(6) Net Loss per Common Share

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

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Basic and diluted net loss per common share:

        

Numerator:

        

Net loss

   $ (49,593   $ (60,302   $ (55,706   $ (47,877

Preferred stock dividends

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

Less: Net income attributable to non-controlling interest

     62        267        170        242   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (54,964   $ (65,878   $ (66,435   $ (58,678
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted-average common shares outstanding — basic and diluted

     82,648        81,311        82,518        81,255   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.67   $ (0.81   $ (0.81   $ (0.72
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Denominator:

           

Options to purchase shares of common stock

     9,380         9,798         9,380         9,798   

Warrants

     4         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

     23,396         23,479         23,408         23,479   
  

 

 

    

 

 

    

 

 

    

 

 

 

(7) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

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, and for the three and six months ended June 30, 2013, 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 loss per common share for each of the respective periods. As of June 30, 2014, $5.3 million of Series B preferred stock dividends was accrued. As of July 15, 2014, payments have been made covering all dividend periods through June 30, 2014.

 

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The Series B preferred stock dividends for the three and six months ended June 30, 2014 and 2013 were paid in cash.

(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, 2014 and 2013 is provided below (in thousands):

 

     Six Months Ended June 30,  
     2014     2013  
     Total
Stockholders’
Equity
    Non-
controlling
Interests
     Total
Equity
    Total
Stockholders’
Equity
    Non-
controlling
Interests
     Total
Equity
 

Equity, beginning of period

   $ 2,077,966      $ 4,882       $ 2,082,848      $ 2,180,422      $ 2,282       $ 2,182,704   

Issuance of common stock under employee compensation plans

     21,121        —           21,121        7,772        —           7,772   

Preferred stock dividends

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

Stock-based compensation expense

     4,582        —           4,582        8,800        —           8,800   

Excess tax benefits on exercised stock options

     124        —           124        (1,589     —           (1,589

Non-controlling interest from acquisition

     —          —           —          —          1,701         1,701   

Net income (loss)

     (55,876     170         (55,706     (48,119     242         (47,877

Total other comprehensive income (loss)

     26,459        —           26,459        (109,068     —           (109,068
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Equity, end of period

   $ 2,063,730      $ 5,052       $ 2,068,782      $ 2,027,572      $ 4,225       $ 2,031,797   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

(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 and six months ended June 30, 2014, we expensed acquisition-related costs of $0.1 million and $0.4 million, respectively, in general and administrative expense. During the three and six months ended June 30, 2013, we expensed acquisition-related costs of $0.4 million and $1.3 million, respectively, in general and administrative expense.

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

Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. We are not aware of any information that indicates the final fair value analysis will differ materially from the estimates. The estimated useful lives of the individual categories of intangible assets were based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the shorter of the respective lives of the agreement or the period of time the intangible assets are expected to contribute to future cash flows. We amortize our finite-lived intangible assets based on patterns on which the respective economic benefits are expected to be realized.

Acquisitions in 2013

(i) Epocal

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

 

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(ii) Other acquisitions in 2013

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

 

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

 

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

 

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

 

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

 

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

 

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

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

Our consolidated statement of operations for the three and six months ended June 30, 2014 included revenue totaling approximately $11.6 million and $35.4 million, respectively, related to these businesses. Goodwill has been recognized in the Mega Medika, Alere Health Services, Pantech, and Simplex acquisitions and amounted to approximately $2.5 million. The goodwill related to the Mega Medika and Simplex acquisitions is deductible for tax purposes, but the goodwill related to the Pantech and Alere Health Services acquisitions is not.

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

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

 

     Epocal      Other      Total  

Current assets(1)

   $ 12,536       $ 13,640       $ 26,176   

Property, plant and equipment

     1,267         1,731         2,998   

Goodwill

     98,529         2,543         101,072   

Intangible assets

     164,400         51,180         215,580   

Other non-current assets

     18,158         29         18,187   
  

 

 

    

 

 

    

 

 

 

Total assets acquired

     294,890         69,123         364,013   
  

 

 

    

 

 

    

 

 

 

Current liabilities

     2,627         5,398         8,025   

Non-current liabilities

     43,727         6,175         49,902   
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     46,354         11,573         57,927   
  

 

 

    

 

 

    

 

 

 

Net assets acquired

     248,536         57,550         306,086   

Less:

        

Contingent consideration

     75,000         1,264         76,264   

Settlement of pre-existing arrangements

     22,088         17,500         39,588   

Non-controlling interest

     —           1,774         1,774   

Bargain purchase gain

     —           8,023         8,023   

Deferred purchase price consideration

     —           768         768   
  

 

 

    

 

 

    

 

 

 

Cash paid

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

 

 

    

 

 

    

 

 

 

 

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

 

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

 

     Epocal      Other      Total      Weighted-
average
Useful Life
 

Core technology and patents

   $ 119,700       $ —         $ 119,700         20.0 years   

Software

     —           2,154         2,154         5.7 years   

Trademarks and trade names

     20,500         80         20,580         19.1 years   

License agreements

     —           620         620         1.5 years   

Customer relationships

     —           42,510         42,510         11.5 years   

Other

     —           5,816         5,816         3.0 years   

In-process research and development

     24,200         —           24,200         N/A   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

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

 

 

    

 

 

    

 

 

    

(9) 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, 2014 and 2013 (in thousands):

 

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

Statement of Operations Caption

   2014      2013      2014      2013  

Cost of net revenue

   $ 292       $ 729       $ 1,167       $ 1,352   

Research and development

     3,031         645         3,031         645   

Sales and marketing

     4,851         159         6,408         1,258   

General and administrative

     7,656         6,511         12,439         8,681   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     15,830         8,044         23,045         11,936   

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

     108         62         233         117   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 15,938       $ 8,106       $ 23,278       $ 12,053   
  

 

 

    

 

 

    

 

 

    

 

 

 

(a) 2014 Restructuring Plans

In 2014, management developed world-wide cost reduction efforts to reduce costs and improve operational efficiencies within our professional diagnostics, health information solutions and corporate and other business segments, impacting our U.S. sales force, our global information technology group and certain businesses 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, 2014 (in thousands):

 

     Three Months Ended June 30, 2014  
     Professional
Diagnostics
     Health Information
Solutions
     Corporate
and Other
     Total  

Severance-related costs

   $ 9,551       $ 925       $ 2,113       $ 12,589   

Facility and transition costs

     147         —           1,942         2,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     9,698         925         4,055         14,678   

Fixed asset and inventory impairments

     1,330         —           —           1,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 11,028       $ 925       $ 4,055       $ 16,008   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Six Months Ended June 30, 2014  
     Professional
Diagnostics
     Health Information
Solutions
     Corporate
and Other
     Total  

Severance-related costs

   $ 11,915       $ 925       $ 2,200       $ 15,040   

Facility and transition costs

     181         —           1,950         2,131   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     12,096         925         4,150         17,171   

Fixed asset and inventory impairments

     2,080         —           —           2,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 14,176       $ 925       $ 4,150       $ 19,251   
  

 

 

    

 

 

    

 

 

    

 

 

 

We anticipate incurring approximately $2.5 million and $1.0 million in additional costs under our 2014 restructuring plans related to our professional diagnostics and corporate and other business segments, respectively, in the U.S. and Europe. We do not anticipate incurring additional costs under our 2014 restructuring plan relating to our health information solutions segment. We may develop additional plans over the remainder of 2014. As of June 30, 2014, $5.2 million in severance and transition costs arising under our 2014 restructuring plans remain unpaid.

(b) 2013 Restructuring Plans

In 2013, management developed cost reduction efforts within our professional diagnostics business segment, impacting businesses in our U.S., Europe and Asia Pacific regions. Additionally, management took steps to improve efficiencies within our health information solutions business segment, including winding down a small portion of this business, which resulted in charges associated with the impairment of related fixed and intangible assets. The following tables summarize the restructuring activities in our professional diagnostics and health information solutions business segments related to our 2013 restructuring plans for the three and six months ended June 30, 2014 and 2013 and since inception (in thousands):

 

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

Professional Diagnostics

   2014      2013      2014      2013     

Severance-related costs

   $ —         $ 1,251       $ 838       $ 2,084       $ 7,964   

Facility and transition costs

     42         337         216         350         2,797   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash charges

     42         1,588         1,054         2,434         10,761   

Fixed asset and inventory impairments

     —           —           —           —           743   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total charges

   $ 42       $ 1,588       $ 1,054       $ 2,434       $ 11,504   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Health Information Solutions

   2014     2013     2014     2013     

Severance-related costs

   $ —        $ (11   $ 89      $ 58       $ 3,356   

Facility and transition costs

     (192     241        3,035        241         5,990   

Other exit costs

     52        —          85        —           102   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash charges

     (140     230        3,209        299         9,448   

Fixed asset and inventory impairments

     —          170        —          170         1,089   

Intangible asset impairments

     —          2,596        —          2,596         2,596   

Other non-cash (recoveries)

     —          —          (854     —           (1,757
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total charges

   $ (140   $ 2,996      $ 2,355      $ 3,065       $ 11,376   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

We anticipate incurring approximately $0.8 million in additional costs under our 2013 restructuring plans related to our professional diagnostics business segment in the United States and approximately $0.6 million in additional facility costs under our 2013 restructuring plans related to our health information solutions segment. As of June 30, 2014, $5.8 million in severance and facility costs arising under our 2013 restructuring plans remain unpaid.

 

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(c) Restructuring Plans Prior to 2013

The following table summarizes the restructuring activities related to our active 2012, 2011, 2010 and 2008 restructuring plans for the three and six months ended June 30, 2014 and 2013 and since inception (in thousands):

 

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

Professional Diagnostics

   2014      2013     2014      2013         

Severance-related costs

   $ 39       $ (28   $ 98       $ 284       $ 24,290   

Facility and transition costs

     35         180       119         412         8,881   

Other exit costs

     11         15        23         31         779   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Cash charges

     85         167        240         727         33,950   

Fixed asset and inventory impairments

     —           —          —           —           6,922   

Intangible asset impairments

     —           —          —           —           686   

Other non-cash charges

     —           —          —           —           64   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total charges

   $ 85       $    167      $ 240       $    727       $ 41,622   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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

Health Information Solutions

   2014     2013     2014      2013    

Severance-related costs

   $ —        $ 529      $ —         $ 2,348      $ 12,308   

Facility and transition costs (recoveries)

     (102     3,612        253         4,271        13,768   

Other exit costs

     45        47        125         86        888   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cash charges (recoveries)

     (57     4,188        378         6,705        26,964   

Fixed asset and inventory impairments

     —          75        —           75        3,878   

Intangible asset impairments

     —          —          —           —          5,923   

Other non-cash charges

     —          (908     —           (953     (223
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total charges (recoveries)

   $ (57   $ 3,355      $ 378       $ 5,827      $ 36,542   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

As of June 30, 2014, $4.2 million in cash charges remain unpaid, primarily related to facility lease obligations, which are anticipated to continue through 2020.

 

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(d) Restructuring Reserves

The following table summarizes our restructuring reserves related to the plans described above, of which $10.0 million is included in accrued expenses and other current liabilities and $5.2 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, 2013

   $ 2,708      $ 7,830      $ 609      $ 11,147   

Cash charges

     16,065        5,754        233        22,052   

Payments

     (14,647     (3,196     (183     (18,026

Currency adjustments

     (5     60        (9     46   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

   $ 4,121      $ 10,448      $ 650      $ 15,219   
  

 

 

   

 

 

   

 

 

   

 

 

 

(10) Long-term Debt

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

 

     June 30, 2014     December 31, 2013  

A term loans(1) (2)

   $ 809,063      $ 832,188   

B term loans(1) (3)

     1,337,521        1,344,238   

Revolving line of credit(1)

     170,000        170,000   

7.25% Senior notes

     450,000        450,000   

6.5% Senior subordinated notes

     425,000        425,000   

8.625% Senior subordinated notes

     400,000        400,000   

3% Convertible senior subordinated notes

     150,000        150,000   

Other lines of credit

     464        355   

Other

     45,718        50,119   
  

 

 

   

 

 

 
     3,787,766        3,821,900   

Less: Short-term debt and current portion

     (63,757     (49,112
  

 

 

   

 

 

 
   $ 3,724,009      $ 3,772,788   
  

 

 

   

 

 

 

 

(1)  Incurred under our secured credit facility.
(2)  Includes “A” term loans and “Delayed Draw” term loans under our secured credit facility.
(3)  Includes term loans previously referred to as “Incremental B-1” term loans and “Incremental B-2” term loans under our secured credit facility, which term loans have been converted into and consolidated with the “B” term loans under our secured credit facility.

In connection with our significant long-term debt issuances, we recorded interest expense, including amortization and write-offs of deferred financing costs and original issue discounts, in our Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2014 and 2013, respectively, as follows (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Secured credit facility (1)

   $ 24,859       $ 25,657       $ 49,621       $ 52,932   

7.25% Senior notes

     8,524         8,480         17,049         16,836   

7.875% Senior notes (2)

     —           1         —           137   

6.5% Senior subordinated notes

     7,176         3,013         14,354         3,013   

9% Senior subordinated notes (3)

     —           43,649         —           54,043   

8.625% Senior subordinated notes

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

3% Senior subordinated convertible notes

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

 

 

    

 

 

    

 

 

    

 

 

 
   $ 51,080       $ 91,320       $ 102,064       $ 148,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes “A” term loans, including the “Delayed-Draw” term loans; “B” term loans; “Incremental B-1” term loans; “Incremental B-2” term loans; and revolving line of credit loans. For the three-month and six-month periods 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. For the three-month and six-month periods ended June 30, 2013, the amount includes $0.8 million and $1.8 million, respectively, related to the amortization of fees paid for certain debt modifications.

 

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(2)  For the six months ended June 30, 2013, this amount includes an approximate $0.2 million loss recorded in connection with the repurchase of our 7.875% senior notes.
(3)  An approximate $35.6 million loss in connection with the repurchase of our 9% senior subordinated notes has been included in each of the three-month and six-month periods for 2013. Included in the $35.6 million is $19.0 million related to tender offer consideration and call premium which has been classified within cash flow from financing activities in our Consolidated Statement of Cash Flows.

(11) Fair Value Measurements

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

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

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

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, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

Description

   June 30,
        2014        
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 802       $ 802       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 802       $ 802       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 197,078       $ —         $ —         $ 197,078   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 197,078       $ —         $ —         $ 197,078   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Description

   December 31,
        2013        
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Unobservable Inputs
(Level 3)
 

Assets:

           

Marketable securities

   $ 858       $ 858       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 858       $ 858       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Contingent consideration obligations (1)

   $ 213,969       $ —         $ —         $ 213,969   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 213,969       $ —         $ —         $ 213,969   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 16 for additional information on the valuation of our contingent consideration obligations.

 

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Changes in the fair value of our Level 3 contingent consideration obligations during the six months ended June 30, 2014 were as follows (in thousands):

 

Fair value of contingent consideration obligations, January 1, 2014

   $ 213,969   

Payments

     (38,305

Present value accretion and adjustments

     21,329   

Foreign currency adjustments

     85   
  

 

 

 

Fair value of contingent consideration obligations, June 30, 2014

   $ 197,078   
  

 

 

 

At June 30, 2014 and December 31, 2013, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable and other current liabilities approximated their estimated fair values.

The carrying amount and estimated fair value of our long-term debt were $3.8 billion and $3.9 billion, respectively, at June 30, 2014. The carrying amount and estimated fair value of our long-term debt were $3.8 billion and $3.9 billion, respectively, at December 31, 2013. The estimated fair value of our long-term debt was determined using market sources that were derived from available market information (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future.

(12) Defined Benefit Pension Plan

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

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Service cost

   $ —        $ —        $ —        $ —     

Interest cost

     203        180        402        361   

Expected return on plan assets

     (192     (154     (380     (309

Amortization of prior service costs

     112        102        222        205   

Realized losses

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 123      $ 128      $ 244      $ 257   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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(13) Financial Information by Segment

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are professional diagnostics, health information solutions, consumer diagnostics and corporate and other. Our operating results include license and royalty revenue which are allocated to professional diagnostics and consumer diagnostics on the basis of the original license or royalty agreement. We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three and six months ended June 30, 2014 and 2013 and as of June 30, 2014 and December 31, 2013 is as follows (in thousands):

 

     Professional
Diagnostics
     Health
Information
Solutions
    Consumer
Diagnostics
     Corporate
and
Other
    Total  

Three Months Ended June 30, 2014:

            

Net revenue

   $ 583,370       $ 125,815      $ 28,758       $ —        $ 737,943   

Operating income (loss)

   $ 11,516       $ (4,247   $ 4,627       $ (20,655   $ (8,759

Depreciation and amortization

   $ 77,173       $ 18,964      $ 843       $ 910      $ 97,890   

Restructuring charge

   $ 11,145       $ 630      $ —         $ 4,055      $ 15,830   

Stock-based compensation

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

Three Months Ended June 30, 2013:

            

Net revenue

   $ 603,762       $ 134,775      $ 25,448       $ —        $ 763,985   

Operating income (loss)

   $ 72,896       $ (11,759   $ 3,404       $ (20,137   $ 44,404   

Depreciation and amortization

   $ 86,856       $ 20,725      $ 1,080       $ 273      $ 108,934   

Non-cash charge associated with acquired inventory

   $ 711       $ —        $ —         $ —        $ 711   

Restructuring charge

   $ 1,740       $ 6,304      $ —         $ —        $ 8,044   

Stock-based compensation

   $ —         $ —        $ —         $ 4,677      $ 4,677   

Six Months Ended June 30, 2014:

            

Net revenue

   $ 1,149,915       $ 249,483      $ 55,167       $ —        $ 1,454,565   

Operating income (loss)

   $ 62,842       $ (10,967   $ 6,875       $ (41,569   $ 17,181   

Depreciation and amortization

   $ 154,594       $ 38,075      $ 1,763       $ 1,544      $ 195,976   

Restructuring charge

   $ 15,448       $ 3,447      $ —         $ 4,150      $ 23,045   

Stock-based compensation

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

Six Months Ended June 30, 2013:

            

Net revenue

   $ 1,186,254       $ 268,982      $ 47,998       $ —        $ 1,503,234   

Operating income (loss)

   $ 132,736       $ (25,652   $ 5,684       $ (37,875   $ 74,893   

Depreciation and amortization

   $ 169,650       $ 41,462      $ 2,233       $ 559      $ 213,904   

Non-cash charge associated with acquired inventory

   $ 1,172       $ —        $ —         $ —        $ 1,172   

Restructuring charge

   $ 3,129       $ 8,807      $ —         $ —        $ 11,936   

Stock-based compensation

   $ —         $ —        $ —         $ 8,800      $ 8,800   

Assets:

            

As of June 30, 2014

   $ 5,651,470       $ 483,352      $ 207,513       $ 648,330      $ 6,990,665   

As of December 31, 2013

   $ 5,744,734       $ 504,645      $ 197,458       $ 613,977      $ 7,060,814   

The following tables summarize our net revenue from the professional diagnostics and health information solutions reporting segments by groups of similar products and services for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

Professional Diagnostics Segment

   Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Infectious disease

   $ 165,641       $ 157,706       $ 329,671       $ 347,550   

Toxicology

     164,677         165,884         316,574         314,933   

Cardiology

     101,783         118,436         223,416         233,369   

Diabetes

     51,227         74,905         101,948         124,988   

Other

     94,750         82,666         167,802         157,385   
  

 

 

    

 

 

    

 

 

    

 

 

 

Professional diagnostics net product sales and services revenue

     578,078         599,597         1,139,411         1,178,225   

License and royalty revenue

     5,292         4,165         10,504         8,029   
  

 

 

    

 

 

    

 

 

    

 

 

 

Professional diagnostics net revenue

   $ 583,370       $ 603,762       $ 1,149,915       $ 1,186,254   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Health Information Solutions Segment

   Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  

Condition and case management

   $ 48,527       $ 52,578       $ 97,846       $ 106,704   

Wellness

     23,534         27,230         48,484         53,530   

Women’s and children’s health

     24,324         29,256         46,539         58,336   

Patient self-testing services

     29,430         25,711         56,614         50,412   
  

 

 

    

 

 

    

 

 

    

 

 

 

Health information solutions net revenue

   $ 125,815       $ 134,775       $    249,483       $    268,982   
  

 

 

    

 

 

    

 

 

    

 

 

 

(14) Related Party Transactions

In May 2007, we completed the formation of Swiss Precision Diagnostics GmbH, or SPD, our 50/50 joint venture with Procter & Gamble, 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.

 

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We had a net receivable from SPD of $1.2 million and $2.1 million as of June 30, 2014 and December 31, 2013, respectively. Included in the $1.2 million receivable balance as of June 30, 2014 is approximately $1.7 million of costs incurred in connection with our 2008 SPD-related restructuring plans. Included in the $2.1 million receivable balance as of December 31, 2013 is approximately $1.8 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $11.9 million and $13.2 million as of June 30, 2014 and December 31, 2013, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the formation of the joint venture was completed have been classified as other receivables within prepaid and other current assets on our Consolidated Balance Sheets in the amount of $6.7 million and $12.4 million as of June 30, 2014 and December 31, 2013, 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 $20.6 million and $41.2 million during the three and six months ended June 30, 2014, respectively, and $18.2 million and $35.3 million during the three and six months ended June 30, 2013, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.7 million during the three and six months ended June 30, 2014, respectively, and $0.3 million and $0.6 million during the three and six months ended June 30, 2013, 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 $4.8 million and $9.4 million of trade receivables which are included in accounts receivable on our Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, respectively, and $18.7 million and $18.8 million of trade accounts payable which are included in accounts payable on our accompanying Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, respectively. During the six months ended June 30, 2013, we received $10.8 million in cash from SPD as a return of capital.

Alere (Shanghai) Diagnostics Co., Ltd., or Alere Shanghai, and SPD Trading (Shanghai) Co., Ltd., or SPD Shanghai, entered into an entrustment loan arrangement for a maximum of CNY 23 million (approximately $3.7 million at June 30, 2014), 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 Alere Shanghai’s balance sheet and amounted to $1.7 million at June 30, 2014.

The following table summarizes our related party balances with SPD within our Consolidated Balance Sheets (in thousands):

 

Balance Sheet Caption

   June 30, 2014      December 31, 2013  

Accounts receivable, net of allowances

   $ 4,777       $ 9,436   

Prepaid expenses and other current assets

   $ 7,813       $ 12,417   

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

   $ 11,933       $ 13,249   

Accounts payable

   $ 18,719       $ 18,811   

(15) Other Arrangements

On February 19, 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, 2014, we had borrowed no amounts under the Gates Loan Agreement. As of June 30, 2014, we had received approximately $11.6 million in grant-related funding from the Gates Foundation, which was recorded as restricted cash and deferred grant funding. The deferred grant funding 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, 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.

 

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(16) Material Contingencies

Acquisition-related Contingent Consideration Obligations

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.

We have 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,
2014
    Remaining
Earn-out
Period as
of
June 30,
2014
    Estimated
Fair Value as
of
June 30,
2014
     Estimated
Fair Value as
of
December 31,
2013
     Payments
Made
During
2014
 

TwistDx, Inc.

     March 11, 2010       $ 35,600       $ 115,777        2014 – 2025 (1)    $ 49,800       $ 45,502       $ 8,250   

Ionian Technologies, Inc.

     July 12, 2010       $ 24,500       $ 53,750        2014 – 2015        28,200         29,000         3,750   

Laboratory Data Systems, Inc.

     August 29, 2011       $ 13,000       $ —          —          —           7,400         7,500   

Forensics Limited (ROAR)

     September 22, 2011       $ 5,463       $ 12,600        2014        3,409         2,484         —    

Method Factory Inc. (Wellogic)

     December 9, 2011       $ 18,900       $ —   (2)      2014 – 2019        25,500         26,900         150   

MedApps

     July 2, 2012       $ 13,100       $ 8,600        2014        7,700         8,200         5,000   

Amedica Biotech, Inc.

     July 3, 2012       $ 8,900       $ —          —          —           7,500         8,055   

DiagnosisOne, Inc.

     July 31, 2012       $ 22,300       $ 33,000        2014 – 2017        24,800         26,600         3,000   

Epocal

     February 1, 2013       $ 75,000       $ 65,500        2014 – 2018        46,700         47,200         —    

Other

     Various       $ 58,877       $ 20,129        2014 – 2016        10,969         13,183         2,600   
            

 

 

    

 

 

    

 

 

 
             $ 197,078       $ 213,969       $ 38,305   
            

 

 

    

 

 

    

 

 

 

 

(1)  The maximum earn-out period ends on the fifteenth anniversary of the acquisition date.
(2)  The earn-out is comprised of three components of which two components have an aggregate maximum remaining earn-out potential of $49.9 million. There is no dollar cap on the third earn-out component, however, the earn-out potential is limited to the remaining earn-out period.

 

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(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, comprehensive income or cash flows upon adoption.

Recently Issued Standards

In June 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-12, Compensation – Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, or ASU 2014-12. ASU 2014-12 requires that a performance target which affects vesting and which could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

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

In April 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) — Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 requires that only disposals representing a strategic shift in operations which has a major effect on the organization’s operations and financial results, such as a disposal of a major geographic area, a major line of business, or a major equity method investment, should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. ASU 2014-08 is effective in the first quarter of 2015. The impact on our consolidated financial statements will be dependent on any transaction that is within the scope of the new guidance.

Recently Adopted Standards

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

(18) 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 $1.8 million and $6.9 million during the three and six months ended June 30, 2014, respectively, and earnings of $4.2 million and $6.7 million during the three and six months ended June 30, 2013, 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.

 

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(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 $0.7 million during the three and six months ended June 30, 2014, respectively, and earnings of $0.5 million and $0.8 million during the three and six months ended June 30, 2013, 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.

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:

   2014      2013      2014      2013  

Net revenue

   $ 41,203       $ 54,669       $ 90,136       $ 103,824   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

   $ 37,432       $ 35,591       $ 80,412       $ 72,704   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income after taxes

   $ 4,328       $ 9,429       $ 15,158       $ 15,006   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Combined Condensed Balance Sheet:

   June 30, 2014      December 31, 2013  

Current assets

   $ 72,005       $ 63,985   

Non-current assets

     36,657         38,541   
  

 

 

    

 

 

 

Total assets

   $ 108,662       $ 102,526   
  

 

 

    

 

 

 

Current liabilities

   $ 35,283       $ 38,053   

Non-current liabilities

     7,004         6,175   
  

 

 

    

 

 

 

Total liabilities

   $ 42,287       $ 44,228   
  

 

 

    

 

 

 

(19) Loss on Disposition

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 Glucostabilizer business are immaterial to our consolidated financial results.

(20) Guarantor Financial Information

Our 7.25% senior notes due 2018, our 8.625% senior subordinated notes due 2018, and our 6.5% senior subordinated notes due 2020 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, 2014 and December 31, 2013, the related Statements of Operations, Statements of Comprehensive Loss for each of the three and six months ended June 30, 2014 and 2013, respectively, and the Statements of Cash Flows for the six months ended June 30, 2014 and 2013, 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.

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 202,646      $ 358,699      $ (57,920   $ 503,425   

Services revenue

     —          209,915        17,999        —          227,914   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          412,561        376,698        (57,920     731,339   

License and royalty revenue

     —          3,833        6,003        (3,232     6,604   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          416,394        382,701        (61,152     737,943   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     691        122,230        203,048        (51,481     274,488   

Cost of services revenue

     70        120,742        8,726        (7,126     122,412   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     761        242,972        211,774        (58,607     396,900   

Cost of license and royalty revenue

     —          47        4,309        (3,231     1,125   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     761        243,019        216,083        (61,838     398,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (761     173,375        166,618        686        339,918   

Operating expenses:

          

Research and development

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

Sales and marketing

     3,197        75,036        72,430        —          150,663   

General and administrative

     25,700        75,776        58,470        —          159,946   

Loss on disposition

     —          638        —          —          638   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (36,821     6,335        21,041        686        (8,759

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

     (51,385     (5,136     (4,590     8,960        (52,151

Other income (expense), net

     2,423        4,475        4,680        (8,959     2,619   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (85,783     5,674        21,131        687        (58,291

Provision (benefit) for income taxes

     (23,898     7,505        9,581        201        (6,611
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (61,885     (1,831     11,550        486        (51,680

Equity in earnings of subsidiaries, net of tax

     11,869        165        —          (12,034     —     

Equity earnings of unconsolidated entities, net of tax

     423        —          1,673        (9     2,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (49,593     (1,666     13,223        (11,557     (49,593

Less: Net income attributable to non-controlling interests

     —          —          62        —          62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (49,593     (1,666     13,161        (11,557     (49,655

Preferred stock dividends

     (5,309     —          —          —          (5,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (54,902   $ (1,666   $ 13,161      $ (11,557   $ (54,964
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 209,009      $ 365,244      $ (52,691   $ 521,562   

Services revenue

     —          218,639        18,919        —          237,558   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          427,648        384,163        (52,691     759,120   

License and royalty revenue

     —          2,770        5,072        (2,977     4,865   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          430,418        389,235        (55,668     763,985   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     887        118,186        180,311        (46,195     253,189   

Cost of services revenue

     —          120,648        9,356        (5,194     124,810   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     887        238,834        189,667        (51,389     377,999   

Cost of license and royalty revenue

     —          18        4,458        (2,977     1,499   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     887        238,852        194,125        (54,366     379,498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (887     191,566        195,110        (1,302     384,487   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     6,229        17,144        17,127        —          40,500   

Sales and marketing

     1,413        82,003        76,006        —          159,422   

General and administrative

     14,477        76,609        49,075        —          140,161   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     22,119        175,756        142,208        —          340,083   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (23,006     15,810        52,902        (1,302     44,404   

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

     (91,660     (6,382     (3,071     8,660        (92,453

Other income (expense), net

     (5,607     5,636        9,695        (8,661     1,063   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (120,273     15,064        59,526        (1,303     (46,986

Provision (benefit) for income taxes

     (10,360     10,524        18,268        (565     17,867   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (109,913     4,540        41,258        (738     (64,853

Equity in earnings (losses) of subsidiaries, net of tax

     49,045        (559     —          (48,486     —     

Equity earnings of unconsolidated entities, net of tax

     566        —          4,027        (42     4,551   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (60,302     3,981        45,285        (49,266     (60,302

Less: Net income attributable to non-controlling interests

     —          —          267        —          267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (60,302     3,981        45,018        (49,266     (60,569

Preferred stock dividends

     (5,309     —          —          —          (5,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (65,611   $ 3,981      $ 45,018      $ (49,266   $ (65,878
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 416,055      $ 694,736      $ (111,921   $ 998,870   

Services revenue

     —          407,823        36,056        —          443,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          823,878        730,792        (111,921     1,442,749   

License and royalty revenue

     —          7,318        11,021        (6,523     11,816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          831,196        741,813        (118,444     1,454,565   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     1,379        236,365        386,822        (103,966     520,600   

Cost of services revenue

     143        236,067        16,780        (12,846     240,144   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     1,522        472,432        403,602        (116,812     760,744   

Cost of license and royalty revenue

     —          139        9,047        (6,522     2,664   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     1,522        472,571        412,649        (123,334     763,408   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (1,522     358,625        329,164        4,890        691,157   

Operating expenses:

          

Research and development

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

Sales and marketing

     5,065        149,995        142,667        —          297,727   

General and administrative

     44,188        144,558        110,736        —          299,482   

Loss on disposition

     —          638        —          —          638   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (63,553     32,999        42,845        4,890        17,181   

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

     (102,643     (10,764     (9,134     18,346        (104,195

Other income (expense), net

     7,117        8,123        10,505        (18,404     7,341   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (159,079     30,358        44,216        4,832        (79,673

Provision (benefit) for income taxes

     (62,321     24,872        19,262        1,659        (16,528
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (96,758     5,486        24,954        3,173        (63,145

Equity in earnings of subsidiaries, net of tax

     40,224        233        —          (40,457     —     

Equity earnings of unconsolidated entities, net of tax

     828        —          6,737        (126     7,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (55,706     5,719        31,691        (37,410     (55,706

Less: Net income attributable to non-controlling interests

     —          —          170        —          170   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (55,706     5,719        31,521        (37,410     (55,876

Preferred stock dividends

     (10,559     —          —          —          (10,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (66,265   $ 5,719      $ 31,521      $ (37,410   $ (66,435
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net product sales

   $ —        $ 442,560      $ 686,083      $ (98,805   $ 1,029,838   

Services revenue

     —          426,388        38,079        —          464,467   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net product sales and services revenue

     —          868,948        724,162        (98,805     1,494,305   

License and royalty revenue

     —          5,805        8,605        (5,481     8,929   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          874,753        732,767        (104,286     1,503,234   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales

     1,835        239,422        352,885        (87,875     506,267   

Cost of services revenue

     —          236,619        17,498        (9,149     244,968   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net product sales and services revenue

     1,835        476,041        370,383        (97,024     751,235   

Cost of license and royalty revenue

     —          35        8,701        (5,481     3,255   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of net revenue

     1,835        476,076        379,084        (102,505     754,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (1,835     398,677        353,683        (1,781     748,744   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     10,652        35,244        36,058        —          81,954   

Sales and marketing

     2,805        165,434        147,639        —          315,878   

General and administrative

     28,504        143,755        103,760        —          276,019   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     41,961        344,433        287,457        —          673,851   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (43,796     54,244        66,226        (1,781     74,893   

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

     (148,518     (13,403     (6,488     18,557        (149,852

Other income (expense), net

     (837     11,895        8,092        (18,557     593   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (193,151     52,736        67,830        (1,781     (74,366

Provision (benefit) for income taxes

     (73,171     27,606        27,239        (678     (19,004
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (119,980     25,130        40,591        (1,103     (55,362

Equity in earnings (losses) of subsidiaries, net of tax

     71,289        (1,173     —          (70,116     —     

Equity earnings of unconsolidated entities, net of tax

     814        —          6,715        (44     7,485   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (47,877     23,957        47,306        (71,263     (47,877

Less: Net income attributable to non-controlling interests

     —          —          242        —          242   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (47,877     23,957        47,064        (71,263     (48,119

Preferred stock dividends

     (10,559     —          —          —          (10,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ (58,436   $ 23,957      $ 47,064      $ (71,263   $ (58,678
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (49,593   $ (1,666   $ 13,223      $ (11,557   $ (49,593
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 income

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     89        55        37,590        —          37,734   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (49,504     (1,611     50,813        (11,557     (11,859

Less: Comprehensive income attributable to non-controlling interests

     —          —          62        —          62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (49,504   $ (1,611   $ 50,751      $ (11,557   $ (11,921
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (60,302   $ 3,981       $ 45,285      $ (49,266   $ (60,302
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax:

           

Changes in cumulative translation adjustment

     (652     —           (33,776     —          (34,428

Minimum pension liability adjustment

     —          —           99        —          99   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax

     (652     —           (33,677     —          (34,329

Income tax benefit related to items of other comprehensive loss

     —          —           —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (652     —           (33,677     —          (34,329
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (60,954     3,981         11,608        (49,266     (94,631

Less: Comprehensive income attributable to non-controlling interests

     —          —           267        —          267   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ (60,954   $ 3,981       $ 11,341      $ (49,266   $ (94,898
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (55,706   $ 5,719      $ 31,691      $ (37,410   $ (55,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     246        (91     26,304        —          26,459   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (55,460     5,628        57,995        (37,410     (29,247

Less: Comprehensive income attributable to non-controlling interests

     —          —          170        —          170   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (55,460   $ 5,628      $ 57,825      $ (37,410   $ (29,417
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
     Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (47,877   $ 23,957       $ 47,306      $ (71,263   $ (47,877
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax:

           

Changes in cumulative translation adjustment

     (853     —           (108,930     —          (109,783

Unrealized gains on hedging instruments

     —          —           11        —          11   

Minimum pension liability adjustment

     —          —           704        —          704   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, before tax

     (853     —           (108,215     —          (109,068

Income tax benefit related to items of other comprehensive loss

     —          —           —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (853     —           (108,215     —          (109,068
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (48,730     23,957         (60,909     (71,263     (156,945

Less: Comprehensive income attributable to non-controlling interests

     —          —           242        —          242   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ (48,730   $ 23,957       $ (61,151   $ (71,263   $ (157,187
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CONSOLIDATING BALANCE SHEET

June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 6,886      $ 72,386      $ 319,530       $ —        $ 398,802   

Restricted cash

     3,638        2,775        3,855         —          10,268   

Marketable securities

     —          797        5         —          802   

Accounts receivable, net of allowances

     —          249,721        287,884         —          537,605   

Inventories, net

     —          165,963        218,306         (16,116     368,153   

Deferred tax assets

     2,786        31,311        30,853         (1,856     63,094   

Prepaid expenses and other current assets

     551,098        (445,792     17,621         3,675        126,602   

Intercompany receivables

     343,216        773,168        116,163         (1,232,547     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     907,624        850,329        994,217         (1,246,844     1,505,326   

Property, plant and equipment, net

     24,371        281,604        236,153         (255     541,873   

Goodwill

     —          1,841,341        1,272,026         —          3,113,367   

Other intangible assets with indefinite lives

     —          9,600        42,809         (58     52,351   

Finite-lived intangible assets, net

     9,484        926,168        632,198         —          1,567,850   

Restricted cash

     —          —          28,886         —          28,886   

Deferred financing costs, net and other non-current assets

     47,967        7,067        24,178         (47     79,165   

Investments in subsidiaries

     3,874,049        271,121        191,922         (4,337,092     —     

Investments in unconsolidated entities

     14,897        14,765        51,578         10,263        91,503   

Deferred tax assets

     —          —          8,008         —          8,008   

Non-current income tax receivable

     2,336        —          —           —          2,336   

Intercompany notes receivables

     1,098,437        694,654        50,579         (1,843,670     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,979,165      $ 4,896,649      $ 3,532,554       $ (7,417,703   $ 6,990,665   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Current liabilities:

           

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

   $ 60,000      $ 550      $ 3,207       $ —        $ 63,757   

Current portion of capital lease obligations

     —          2,793        2,946         —          5,739   

Accounts payable

     9,431        86,305        122,191         —          217,927   

Accrued expenses and other current liabilities

     65,830        148,115        167,784         (35     381,694   

Intercompany payables

     769,674        187,302        275,571         (1,232,547     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     904,935        425,065        571,699         (1,232,582     669,117   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term liabilities:

           

Long-term debt, net of current portion

     3,690,295        —          33,714         —          3,724,009   

Capital lease obligations, net of current portion

     —          5,106        8,719         —          13,825   

Deferred tax liabilities

     (71,050     285,142        79,035         23        293,150   

Other long-term liabilities

     24,863        67,477        129,489         (47     221,782   

Intercompany notes payables (receivables)

     (633,608     1,366,558        1,110,720         (1,843,670     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     3,010,500        1,724,283        1,361,677         (1,843,694     4,252,766   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Stockholders’ equity

     2,063,730        2,747,301        1,594,126         (4,341,427     2,063,730   

Non-controlling interests

     —          —          5,052         —          5,052   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total equity

     2,063,730        2,747,301        1,599,178         (4,341,427     2,068,782   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 5,979,165      $ 4,896,649      $ 3,532,554       $ (7,417,703   $ 6,990,665   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

30


Table of Contents

CONSOLIDATING BALANCE SHEET

December 31, 2013

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 14,801      $ 85,453      $ 261,654      $ —        $ 361,908   

Restricted cash

     2,221        2,915        1,237        —          6,373   

Marketable securities

     —          853        5        —          858   

Accounts receivable, net of allowances

     —          238,782        309,947        —          548,729   

Inventories, net

     —          168,058        219,892        (23,765     364,185   

Deferred tax assets

     5,191        20,541        31,451        3,506        60,689   

Prepaid expenses and other current assets

     512,123        (405,954     23,547        (44     129,672   

Intercompany receivables

     331,844        759,497        75,424        (1,166,765     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     866,180        870,145        923,157        (1,187,068     1,472,414   

Property, plant and equipment, net

     15,086        288,637        241,737        (296     545,164   

Goodwill

     —          1,841,377        1,252,314        —          3,093,691   

Other intangible assets with indefinite lives

     —          14,300        42,402        —          56,702   

Finite-lived intangible assets, net

     11,006        995,868        677,737        —          1,684,611   

Restricted cash

     —          —          29,370        —          29,370   

Deferred financing costs, net and other non-current assets

     55,207        8,353        20,559        (46     84,073   

Investments in subsidiaries

     3,787,988        282,311        191,947        (4,262,246     —     

Investments in unconsolidated entities

     29,005        —          44,637        13,188        86,830   

Deferred tax assets

     —          —          7,959        —          7,959   

Intercompany notes receivables (payables)

     1,100,746        630,628        (741,016     (990,358     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,865,218      $ 4,931,619      $ 2,690,803      $ (6,426,826   $ 7,060,814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

          

Current liabilities:

          

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

   $ 45,000      $ 323      $ 3,789      $ —        $ 49,112   

Current portion of capital lease obligations

     —          3,751        3,104        —          6,855   

Accounts payable

     12,584        69,076        105,711        —          187,371   

Accrued expenses and other current liabilities

     63,990        164,762        201,132        (36     429,848   

Intercompany payables

     728,541        163,518        274,707        (1,166,766     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     850,115        401,430        588,443        (1,166,802     673,186   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term liabilities:

          

Long-term debt, net of current portion

     3,735,137        100        37,551        —          3,772,788   

Capital lease obligations, net of current portion

     —          5,938        8,469        —          14,407   

Deferred tax liabilities

     (43,246     284,448        88,039        8        329,249   

Other long-term liabilities

     19,753        58,823        109,806        (46     188,336   

Intercompany notes payables (receivables)

     (774,507     1,444,741        320,125        (990,359     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term liabilities

     2,937,137        1,794,050        563,990        (990,397     4,304,780   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity

     2,077,966        2,736,139        1,533,488        (4,269,627     2,077,966   

Non-controlling interests

     —          —          4,882        —          4,882   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     2,077,966        2,736,139        1,538,370        (4,269,627     2,082,848   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 5,865,218      $ 4,931,619      $ 2,690,803      $ (6,426,826   $ 7,060,814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2014

(in thousands)

 

     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash Flows from Operating Activities:

          

Net income (loss)

   $ (55,706   $ 5,719      $ 31,691      $ (37,410   $ (55,706

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

          

Equity in earnings of subsidiaries, net of tax

     (40,224     (233     —          40,457        —     

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

     7,715        232        189        —          8,136   

Depreciation and amortization

     3,066        116,443        76,420        47        195,976   

Non-cash stock-based compensation expense

     752        2,352        1,478        —          4,582   

Impairment of inventory

     —          —          589        —          589   

Impairment of long-lived assets

     —          —          1,491        —          1,491   

Loss on disposition of fixed assets

     —          4,041        230        —          4,271   

Equity earnings of unconsolidated entities, net of tax

     (828     —          (6,737     126        (7,439

Deferred income taxes

     (24,879     (10,542     (8,561     1,659        (42,323

Loss on disposition

     —          638        —          —          638   

Other non-cash items

     —          1,392        (7,508     —          (6,116

Changes in assets and liabilities, net of acquisitions:

          

Accounts receivable, net

     —          (10,981     24,208        —          13,227   

Inventories, net

     —          (10,813     182        (4,725     (15,356

Prepaid expenses and other current assets

     (38,974     36,298        6,456        (2,362     1,418   

Accounts payable

     (3,153     19,010        14,917        —          30,774   

Accrued expenses and other current liabilities

     (753     (2,237     (10,272     (1,357     (14,619

Other non-current liabilities

     5,723        8,591        7,797        3,718        25,829   

Cash paid for contingent consideration

     (20,124     —          (81     —          (20,205

Intercompany payable (receivable)

     207,787        (146,085     (61,702     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     40,402        13,825        70,787        153        125,167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

          

(Increase) decrease in restricted cash

     (1,424     140        (2,610     —          (3,894

Purchases of property, plant and equipment

     (12,289     (27,491     (17,318     2,668        (54,430

Proceeds from sale of property, plant and equipment

     268        671        2,310        (2,755     494   

Cash received from disposition

     —          1,081        4,373        —          5,454   

Cash paid for business acquisitions, net of cash acquired

     (75     —          —          —          (75

Cash paid for investments

     477        (278     2        —          201   

Cash received from sales of marketable securities

     —          39        —          —          39   

(Increase) decrease in other assets

     (311     370        920        59        1,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (13,354     (25,468     (12,323     (28     (51,173
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

          

Cash paid for financing costs

     (5     —          —          —          (5

Cash paid for contingent purchase price consideration

     (15,505     —          (264     —          (15,769

Proceeds from issuance of common stock, net of issuance costs

     21,121        —          —          —          21,121   

Proceeds from issuance of long-term debt

     —          940        —          —          940   

Payments on long-term debt

     (30,000     (663     (1,579     —          (32,242

Proceeds from issuance of short-term debt

     —          —          806        —          806   

Net proceeds under revolving credit facilities

     —          —          111        —          111   

Cash paid for dividends

     (10,646     —          —          —          (10,646

Excess tax benefits on exercised stock options

     65        282        68        —          415   

Principal payments on capital lease obligations

     —          (1,904     (1,577     —          (3,481
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (34,970     (1,345     (2,435     —          (38,750
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange effect on cash and cash equivalents

     7        (79