Alere Reports Third Quarter 2015 Financial Results

Third Quarter 2015

Third Quarter 2014 (1)

% Change

Cardiometabolic Disease

$208

$208

-

Infectious Disease

$164

$184

(11)

Toxicology

$163

$167

(2)

Other

$  45

$  65

(30)

Consumer Diagnostics

$  19

$  21

(12)

License and Royalty

$   3

$   4

(21)

Total

$602

$649

(7)

(1) Revenues, other than License and Royalty, have been reclassified due to a change in segment reporting as a result of the divestiture of our health management business in 2015 and the results of our patient self-testing business are primarily included within Cardiometabolic Disease.

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended September 30, 

2015

2014

Net product sales and services revenue

$  598,745

$   645,028

License and royalty revenue

3,299

4,182

Net revenue

602,044

649,210

Cost of net revenue

326,995

347,588

      Gross profit

275,049

301,622

      Gross margin

46%

46%

Operating expenses:

Research and development

36,011

38,726

Selling, general and administrative

207,799

227,554

Impairment and loss on disposition, net

2,074

-

      Operating income 

29,165

35,342

Interest and other income (expense), net

(47,588)

(60,419)

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

(18,423)

(25,077)

Provision (Benefit) for income taxes

(18,924)

65,489

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

501

(90,566)

Equity earnings of unconsolidated entities, net of tax

5,000

6,277

Income (loss) from continuing operations

5,501

(84,289)

Loss from discontinued operations, net of tax

-

(14,401)

Net income (loss)

5,501

(98,690)

Less: Net loss attributable to non-controlling interests

(61)

(306)

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

5,562

(98,384)

Preferred stock dividends

(5,367)

(5,367)

Net income (loss) available to common stockholders

$          195

$ (103,751)

Basic net loss per common share:

  Loss from continuing operations

$             -

$        (1.08)

  Loss from discontinued operations

-

(0.17)

      Basic net loss per common share

$             -

$        (1.25)

Diluted net loss per common share:

  Loss from continuing operations

$             -

$        (1.08)

  Loss from discontinued operations

-

(0.17)

      Diluted net loss per common share

$             -

$        (1.25)

Weighted average shares - basic 

85,895

83,115

Weighted average shares - diluted

87,169

83,115

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations 

(in thousands, except per share amounts)

Nine Months Ended September 30, 

2015

2014

Net product sales and services revenue

$  1,825,662

$  1,905,849

License and royalty revenue

13,691

15,998

Net revenue

1,839,353

1,921,847

Cost of net revenue

979,745

1,011,174

      Gross profit

859,608

910,673

      Gross margin

47%

47%

Operating expenses:

Research and development

91,225

114,855

Selling, general and administrative

577,566

730,591

Impairment and loss on disposition, net

42,408

638

      Operating income 

148,409

64,589

Interest and other income (expense), net

(150,523)

(154,112)

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

(2,114)

(89,523)

Provision (benefit) for income taxes

(10,009)

69,273

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

7,895

(158,796)

Equity earnings of unconsolidated entities, net of tax

10,320

13,716

Income (loss) from continuing operations

18,215

(145,080)

Income (loss) from discontinued operations, net of taxes

216,777

(4,082)

Net income (loss)

234,992

(149,162)

Less: Net income (loss) attributable to non-controlling interests

386

(136)

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

234,606

(149,026)

Preferred stock dividends

(15,926)

(15,926)

Net Income (loss) available to common stockholders

$      218,680

$    (164,952)

Basic net income (loss) per common share:

  (Income) loss from continuing operations

$             0.02

$           (1.94)

  Income (loss) from discontinued operations

2.55

(0.05)

      Net Income (loss) per common share

$             2.57

$           (1.99)

Diluted net income (loss) per common share:

  Income (loss) from continuing operations

$             0.02

$           (1.94)

  Income (loss) from discontinued operations

2.51

(0.05)

      Diluted net income (loss) per common share

$           (1.99)

Weighted average shares - basic

85,141

82,719

Weighted average shares - diluted

86,279

82,719

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

September 30,

December 31,

2015

2014

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$            479,381

$          378,461

Restricted cash

430,821

37,571

Marketable securities

157

259

Accounts receivable, net

452,366

466,106

Inventories, net

362,226

365,165

Prepaid expenses and other current assets

136,447

244,986

Assets held for sale

25,312

315,515

Total current assets

1,886,710

1,808,063

PROPERTY, PLANT AND EQUIPMENT, NET

445,315

453,570

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

3,924,614

4,246,761

RESTRICTED CASH - NON-CURRENT

44,148

-

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

147,330

170,562

Assets held for sale - non-current

126,048

-

Total assets

$       6,678,956

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Short-term debt and current portions of long-term debt and capital lease obligations

$            607,597

$             93,116

Liabilities related to assets held for sale

8,836

78,843

Other current liabilities

509,582

589,086

Total current liabilities

1,126,015

761,045

LONG-TERM LIABILITIES:

Long-term debt and capital lease obligations, net of current portions

2,993,928

3,631,945

Deferred tax liabilities

207,451

214,639

Other long-term liabilities

135,200

161,582

Liabilities related to assets held for sale - non-current

9,603

-

Total long-term liabilities

3,346,182

4,008,166

TOTAL EQUITY

2,101,968

1,909,745

Total liabilities and equity

$       6,678,956

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

Three Months Ended September 30, 

2015

2014

Reconciliation to Non-GAAP Adjusted Operating Income (1)

Operating income 

$    29,165

$      35,342

Adjustment related to acquired software license contracts 

430

324

Amortization of acquisition-related intangible assets

60,928

58,813

Restructuring charges 

2,264

17,296

Stock-based compensation expense

7,317

3,168

Compensation charges associated with acquisition-related contingent consideration obligations

191

670

Acquisition-related costs

241

325

Fair value adjustments to acquisition-related contingent consideration

957

(5,537)

Costs associated with potential business dispositions

1,878

6,203

Impairment and loss on disposition, net

2,074

-

Non-GAAP adjusted operating income

$  105,445

$   116,604

Three Months Ended September 30, 

2015

2014

Reconciliation to Non-GAAP Adjusted Net Income(1)

Net income (loss) available to common stockholders

$          195

$ (103,751)

Adjustment related to acquired software license contracts 

430

324

Amortization of acquisition-related intangible assets

60,954

58,818

Restructuring charges 

2,270

17,307

Stock-based compensation expense

7,317

3,168

Compensation charges associated with acquisition-related contingent consideration obligations

191

670

Acquisition-related costs

241

325

Fair value adjustments to acquisition-related contingent consideration

957

(5,537)

Costs associated with potential business dispositions

1,878

6,203

Impairment and loss on disposition, net

2,074

-

Loss on sale of equity investment

-

457

Write off of equity investment in BBI

662

-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

9,273

363

Interest accretion associated with acquisition-related compensation charges

35

102

Amortization of acquisition-related intangible assets, restructuring, fair value adjustments to acquisition-related contingent consideration, and impairment, net of gain on divestiture - Discontinued operations, net of tax

-

17,223

Income tax effects on items above

(38,179)

37,139

Non-GAAP adjusted net income available to common stockholders

$    48,298

$      32,811

Loss per diluted common share from continuing operations

$             -

$        (1.08)

Loss per diluted common share from discontinued operations

-

(0.17)

      Net loss per diluted common share

$             -

$        (1.25)

Weighted average shares - diluted

83,115

Non-GAAP adjusted income per diluted common share  from continuing operations (2)

$         0.54

$          0.35

Non-GAAP adjusted income per diluted common share  from discontinued operations (2)

-

0.03

      Non-GAAP adjusted net income per diluted common share(2)

$         0.54

$          0.38

Non-GAAP adjusted weighted average shares - diluted (2)

100,846

87,929

(1) In calculating "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders", the Company excludes (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income and net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income or net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders" are not standard financial measurements under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income and net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders" presented in this press release may not be comparable to similar measures used by other companies.

(2)Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended September 30, 2015, on a non-GAAP adjusted basis, are dilutive shares consisting of 1,244,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities, 30,000 potentially issuable shares of common stock associated with a contingent consideration arrangement,  and 10,239,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock. The diluted net income per common share calculation for the three months ended September 30, 2015, on a non-GAAP adjusted basis, included the add back of interest expense related to the convertible debt of $0.7 million and the add back of $5.4 million of preferred stock dividends related to the Series B convertible preferred stock, resulting in net income available to common stockholders of $54.4 million for the three months ended September 30, 2015.

Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended September 30, 2014, on a non-GAAP adjusted basis, were dilutive shares consisting of 1,376,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were potential dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities. The diluted net income per common share calculation for the three months ended September 30, 2014, on a non-GAAP adjusted basis, included the add back of interest expense related to the convertible debt of $0.7 million, resulting in net income available to common stockholders of $33.5 million for the three months ended September 30, 2014.

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

Nine Months Ended September 30, 

2015

2014

Reconciliation to Non-GAAP Adjusted Operating Income (1)

Operating income 

$  148,409

$      64,589

Adjustment related to acquired software license contracts 

877

1,116

Amortization of acquisition-related intangible assets

160,867

176,608

Restructuring charges 

11,387

37,074

Stock-based compensation expense

19,596

7,750

Compensation charges associated with acquisition-related contingent consideration obligations

(2,615)

1,673

Acquisition-related costs

332

695

Fair value adjustments to acquisition-related contingent consideration

(51,910)

12,442

Non-cash charge associated with acquired inventory

-

-

Costs associated with potential business dispositions

6,097

20,763

Impairment and loss on disposition, net

42,408

638

Non-GAAP adjusted operating income

$  335,448

$   323,348

Nine Months Ended September 30, 

2015

2014

Reconciliation to Non-GAAP Adjusted Net Income(1)

Net income (loss) available to common stockholders

$  218,680

$ (164,952)

Adjustment related to acquired software license contracts 

877

1,116

Amortization of acquisition-related intangible assets

160,941

176,651

Restructuring charges 

11,406

37,108

Stock-based compensation expense

19,596

7,750

Compensation charges associated with acquisition-related contingent consideration obligations

(2,615)

1,673

Acquisition-related costs

332

695

Fair value adjustments to acquisition-related contingent consideration

(51,910)

12,442

Costs associated with potential business dispositions

6,488

20,763

Impairment and loss on disposition, net

42,408

638

Loss on sale of equity investment

-

457

Write off of equity investment in BBI

662

-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

20,940

1,091

Interest accretion associated with acquisition-related compensation charges

(406)

295

Expense associated with extinguishment of debt

3,480

-

Amortization of acquisition-related intangible assets, restructuring, fair value adjustments to acquisition-related contingent consideration, and impairment, net of gain on divestiture - Discontinued operations, net of tax

(217,589)

12,386

Income tax effects on items above

(70,821)

6,766

Non-GAAP adjusted net income available to common stockholders

$  142,469

$   114,879

Income (loss) per diluted common share from continuing operations

$         0.02

$        (1.94)

Income (loss) per diluted common share from discontinued operations

2.51

(0.05)

      Net income (loss) per diluted common share

$         2.53

$        (1.99)

Weighted average shares - diluted

86,279

82,719

Non-GAAP adjusted income per diluted common share  from continuing operations (2)

$         1.62

$          1.25

Non-GAAP adjusted income (loss) per diluted common share  from discontinued operations (2)

(0.01)

0.09

      Non-GAAP adjusted net income per diluted common share(2)

$         1.61

$          1.34

Non-GAAP adjusted weighted average shares - diluted (2)

99,956

87,311

(1) In calculating "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders", the Company excludes (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from operating income and net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust operating income or net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders" are not standard financial measurements under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to operating income and net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "Non-GAAP adjusted operating income" and "Non-GAAP adjusted net income available to common stockholders" presented in this press release may not be comparable to similar measures used by other companies.

(2)Included in the weighted average diluted common shares for the calculation of net income per common share for the nine months ended September 30, 2015, on a non-GAAP adjusted basis, are dilutive shares consisting of 1,120,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities, 18,000 potentially issuable shares of common stock associated with a contingent consideration arrangement, and 10,239,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock. The diluted net income per common share calculation for the nine months ended September 30, 2015, on a non-GAAP adjusted basis, included the add back of interest expense related to the convertible debt of $2.1 million and the add back of $15.9 million of preferred stock dividends related to the Series B convertible preferred stock, resulting in net income available to common stockholders of $160.5 million for the nine months ended September 30, 2015.

Included in the weighted average diluted common shares for the calculation of net income per common share for the nine months ended September 30, 2014, on a non-GAAP adjusted basis, were dilutive shares consisting of 1,154,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were potential dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities. The diluted net income per common share calculation for the nine months ended September 30, 2014, on a non-GAAP adjusted basis, included the add back of interest expense related to the convertible debt of $2.2 million, resulting in net income available to common stockholders of $117.1 million for the nine months ended September 30, 2014.

Alere Inc. and Subsidiaries

Selected Consolidated Revenues

(in thousands)

% Change

% Change

Q3 2015

YTD 2015

Q3 2014

YTD 2014

Q3 15 v. Q3 14

YTD 15 v. YTD 14

Professional diagnostics segment (1)

Cardiometabolic

$   208,319

$       624,823

$   208,248

$       631,452

0%

-1%

Infectious disease

163,759

519,145

184,018

526,632

-11%

-1%

Toxicology

162,571

468,822

166,381

491,561

-2%

-5%

Other (2)

45,349

147,512

65,183

190,986

-30%

-23%

Total professional diagnostics segment(1) (2)

579,998

1,760,302

623,830

1,840,631

-7%

-4%

Consumer diagnostics segment (1)

18,747

65,360

21,198

65,218

-12%

0%

License and royalty revenue

3,299

13,691

4,182

15,998

-21%

-14%

Net revenue

$   602,044

$   1,839,353

$   649,210

$   1,921,847

-7%

-4%

(1) Revenues have been restated for the impact of a change in segment reporting due to the divestiture of our health management business.

(2) Revenues are presented in accordance with generally accepted accounting principles and exclude an adjustment of $0.5 million and $0.9 million, and $0.3 million and $1.1 million related to acquired software license contracts which were not recognized during the three and nine months ended September 30, 2015 and 2014, respectively, due to business combination accounting rules.

Alere Inc. and Subsidiaries

Reconciliation of Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Loss)

(in thousands)

For the Three Months Ended September 30, 2015

Operating Segment

Professional Diagnostics

Consumer Diagnostics

Corporate

Total

Net revenue 

$      583,297

$      18,747

$             -

$  602,044

Adjustment related to acquired software license contracts(1)

430

-

-

430

Non-GAAP adjusted net revenue

$      583,727

$      18,747

$             -

$  602,474

Operating income (loss) 

$         54,450

$         1,039

$ (26,324)

$    29,165

Adjustment related to acquired software license contracts(1)

430

-

-

430

Amortization of acquisition-related intangible assets

60,880

9

39

60,928

Restructuring charges 

1,578

-

686

2,264

Stock-based compensation expense

-

-

7,317

7,317

Compensation charges associated with acquisition-related contingent consideration obligations

191

-

-

191

Acquisition-related costs

-

-

241

241

Fair value adjustments to acquisition-related contingent consideration

957

-

-

957

Costs associated with potential business dispositions

1,878

-

-

1,878

Impairment and loss on disposition, net

2,074

-

-

2,074

Non-GAAP adjusted operating income (loss)

$      122,438

$         1,048

$ (18,041)

$  105,445

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

21.0%

5.6%

17.5%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the three months ended September 30, 2015 due to business combination accounting rules.

For the Three Months Ended September 30, 2014

Operating Segment

Professional Diagnostics

Consumer Diagnostics

Corporate

Total

Net revenue  (1) 

$      628,012

$      21,198

$             -

$  649,210

Adjustment related to acquired software license contracts(2)

324

-

-

324

Non-GAAP adjusted net revenue

$      628,336

$      21,198

$             -

$  649,534

Operating income (loss) 

$         67,232

$         1,499

$ (33,389)

$    35,342

Adjustment related to acquired software license contracts(2)

324

-

-

324

Amortization of acquisition-related intangible assets

57,306

175

1,332

58,813

Restructuring charges 

14,118

-

3,178

17,296

Stock-based compensation expense

-

-

3,168

3,168

Compensation charges associated with acquisition-related contingent consideration obligations

670

-

-

670

Acquisition-related costs

-

-

325

325

Fair value adjustments to acquisition-related contingent consideration

(8,637)

-

3,100

(5,537)

Costs associated with potential business dispositions

6,203

-

-

6,203

Non-GAAP adjusted operating income (loss)

$      137,216

$         1,674

$ (22,286)

$  116,604

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

21.8%

7.9%

18.0%

(1)  Net revenue has been restated for the impact of a change in segment reporting due to the divestiture of our health management business.

(2) Estimated revenue related to acquired software license contracts that was not recognized during the three months ended September 30, 2014 due to business combination accounting rules.

Comments:

In calculating "Non-GAAP adjusted operating income (loss)" in the schedule presented above, the Company excludes from "Operating income (loss)" (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from "Operating income (loss)" allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust "Operating income (loss)" for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "Non-GAAP adjusted operating income (loss)" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to "Operating income (loss)" as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "Non-GAAP adjusted operating income (loss)" presented in this schedule may not be comparable to similar measures used by other companies.

Reference should also be made to the Company's financial results contained in our earnings press release respective to the periods presented in this schedule, which include a more detailed discussion of the adjustments to the GAAP operating results presented above.

Alere Inc. and Subsidiaries

Reconciliation of Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Loss)

(in thousands)

For the Nine Months Ended September 30, 2015

Operating Segment

Professional Diagnostics

Consumer Diagnostics

Corporate

Total

Net revenue 

$   1,773,993

$      65,360

$               -

$  1,839,353

Adjustment related to acquired software license contracts(1)

877

-

-

877

Non-GAAP adjusted net revenue

$   1,774,870

$      65,360

$               -

$  1,840,230

Operating income (loss) 

$      219,543

$         4,322

$   (75,456)

$     148,409

Adjustment related to acquired software license contracts(1)

877

-

-

877

Amortization of acquisition-related intangible assets

160,723

28

116

160,867

Restructuring charges 

10,103

-

1,284

11,387

Stock-based compensation expense

-

-

19,596

19,596

Compensation charges associated with acquisition-related contingent consideration obligations

(2,615)

-

-

(2,615)

Acquisition-related costs

-

-

332

332

Fair value adjustments to acquisition-related contingent consideration

-

-

(51,910)

(51,910)

Costs associated with potential business dispositions

6,488

-

-

6,488

 Impairment and gain (loss) on dispositions, net

42,408

-

-

42,408

Non-GAAP adjusted operating income (loss)

$      437,527

$         4,350

$ (106,038)

$     335,839

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

24.7%

6.7%

18.2%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the nine months ended September 30, 2015 due to business combination accounting rules.

For the Nine Months Ended September 30, 2014

Operating Segment

Professional Diagnostics

Consumer Diagnostics

Corporate

Total

Net revenue  (1) 

$   1,855,318

$      66,529

$               -

$  1,921,847

Adjustment related to acquired software license contracts(2)

1,116

-

-

1,116

Non-GAAP adjusted net revenue

$   1,856,434

$      66,529

$               -

$  1,922,963

Operating income (loss) 

$      135,856

$         4,210

$   (75,477)

$        64,589

Adjustment related to acquired software license contracts(2)

1,116

-

-

1,116

Amortization of acquisition-related intangible assets

174,638

638

1,332

176,608

Restructuring charges 

29,746

-

7,328

37,074

Stock-based compensation expense

-

-

7,750

7,750

Compensation charges associated with acquisition-related contingent consideration obligations

1,673

-

-

1,673

Acquisition-related costs

-

-

695

695

Fair value adjustments to acquisition-related contingent consideration

9,042

-

3,400

12,442

Costs associated with potential business dispositions

20,763

-

-

20,763

Loss on disposition

638

-

-

638

Non-GAAP adjusted operating income (loss)

$      373,472

$         4,848

$   (54,972)

$     323,348

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

20.1%

7.3%

16.8%

(1)  Net revenue has been restated for the impact of a change in segment reporting due to the divestiture of our health management business.

(2) Estimated revenue related to acquired software license contracts that was not recognized during the nine months ended September 30, 2014 due to business combination accounting rules.

Comments:

In calculating "Non-GAAP adjusted operating income (loss)" in the schedule presented above, the Company excludes from "Operating income (loss)" (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from "Operating income (loss)" allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust "Operating income (loss)" for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "Non-GAAP adjusted operating income (loss)" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to "Operating income (loss)" as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "Non-GAAP adjusted operating income (loss)" presented in this schedule may not be comparable to similar measures used by other companies.

Reference should also be made to the Company's financial results contained in our earnings press release respective to the periods presented in this schedule, which include a more detailed discussion of the adjustments to the GAAP operating results presented above.

Alere Inc. and Subsidiaries

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Net revenue 

$                        602,044

$                        649,210

Adjustment related to acquired software license contracts 

430

324

Non-GAAP adjusted net revenue(1)

$                        602,474

$                        649,534

Cost of net revenue

$                        326,995

$                        347,588

Less adjustments:

Amortization of acquisition-related intangible assets

(16,132)

(15,684)

Restructuring charges 

(523)

(5,654)

Stock-based compensation expense

(326)

(291)

Non-GAAP adjusted cost of net revenue(1)

$                        310,014

$                        325,959

Non-GAAP adjusted gross profit(1)

$                        292,460

$                        323,575

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Research and development 

$                          36,011

$                          38,726

Less adjustments:

Amortization of acquisition-related intangible assets

(8,304)

(1,372)

Restructuring charges 

(18)

(5,457)

Stock-based compensation expense

(287)

(279)

Non-GAAP adjusted research and development(1)

$                          27,402

$                          31,618

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Selling, general and administrative

$                        207,799

$                        227,554

Less adjustments:

Amortization of acquisition-related intangible assets

(36,492)

(41,757)

Restructuring charges 

(1,723)

(6,185)

Stock-based compensation expense

(6,704)

(2,598)

Compensation charges associated with acquisition-related contingent consideration obligations

(191)

(670)

Acquisition-related costs

(241)

(325)

Fair value adjustments to acquisition-related contingent consideration

(957)

5,537

Costs associated with potential business dispositions

(1,878)

(6,203)

Non-GAAP adjusted selling, general and administrative(1)

$                        159,613

$                        175,353

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Impairment and loss on disposition, net

$                             2,074

$                                    -

Impairment and loss on disposition, net

(2,074)

-

Non-GAAP adjusted impairment and loss on disposition, net(1)

$                                    -

$                                    -

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Interest and other income (expense), net

$                        (47,588)

$                        (60,419)

Less adjustments:

Restructuring charges 

6

11

Write off of equity investment in BBI

662

-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

9,273

363

Interest accretion associated with acquisition-related compensation charges

35

102

Non-GAAP adjusted interest and other income (expense), net(1)

$                        (37,612)

$                        (59,943)

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Provision (benefit) for income taxes

$                        (18,924)

$                          65,489

    Add:  Income tax effects on Non-GAAP adjustments

38,200

(37,109)

Non-GAAP adjusted provision for income taxes, net(1)

$                          19,276

$                          28,380

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Equity earnings of unconsolidated entities, net of tax

$                             5,000

$                             6,277

Less adjustments:

Amortization of acquisition-related intangible assets

104

132

Loss on sale of equity investment

-

457

Income tax effects on items above

-

-

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax(1)

$                             5,104

$                             6,866

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Loss from discontinued operations, net of taxes

$                                    -

$                        (14,401)

Less adjustments:

Amortization of acquisition-related intangible assets

-

7,514

Restructuring charges 

-

562

Goodwill impairment charge

-

17,984

Fair value adjustments to acquisition-related contingent consideration

-

(25,071)

Income tax effects on items above

-

16,234

Non-GAAP adjusted income from discontinued operations, net of taxes(1)

$                                    -

$                             2,822

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

Net loss attributable to non-controlling interests, net of tax

$                                (61)

$                              (306)

Less:  Amortization of acquisition-related intangible assets, net of tax

78

127

Income tax effects on items above

21

30

Non-GAAP adjusted net loss attributable to non-controlling interests, net of tax(1)

$                                   (4)

$                              (209)

(1)  The following is a summary of our non-GAAP adjusted measures included above:

Non-GAAP adjusted net revenue

$                        602,474

$                        649,534

Non-GAAP adjusted cost of net revenue

$                        310,014

$                        325,959

Non-GAAP adjusted research and development 

$                          27,402

$                          31,618

Non-GAAP adjusted selling, general and administrative

$                        159,613

$                        175,353

Non-GAAP adjusted impairment and loss on dispositions, net

$                                    -

$                                    -

Non-GAAP adjusted interest and other income (expense), net

$                        (37,612)

$                        (59,943)

Non-GAAP adjusted provision for income taxes

$                          19,276

$                          28,380

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax

$                             5,104

$                             6,866

Non-GAAP adjusted income from discontinued operations, net of tax

$                                    -

$                             2,822

Non-GAAP adjusted net loss attributable to non-controlling interests, net of tax

$                                   (4)

$                              (209)

Alere Inc. and Subsidiaries

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Net revenue

$                    1,839,353

$                    1,921,847

Adjustment related to acquired software license contracts 

877

1,116

Non-GAAP adjusted net revenue(1)

$                    1,840,230

$                    1,922,963

Cost of net revenue

$                        979,745

$                    1,011,174

Less adjustments:

Amortization of acquisition-related intangible assets

(43,440)

(47,242)

Restructuring charges 

(2,921)

(6,707)

Stock-based compensation expense

(866)

(863)

Costs associated with potential business dispositions

(391)

-

Non-GAAP adjusted cost of net revenue(1)

$                        932,127

$                        956,362

Non-GAAP adjusted gross profit(1)

$                        908,103

$                        966,601

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Research and development

$                          91,225

$                        114,855

Less adjustments:

Amortization of acquisition-related intangible assets

(10,088)

(3,721)

Restructuring charges 

(666)

(8,488)

Stock-based compensation expense

(893)

341

Non-GAAP adjusted research and development(1)

$                          79,578

$                        102,987

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Selling, general and administrative

$                        577,566

$                        730,591

Less adjustments:

Amortization of acquisition-related intangible assets

(107,339)

(125,645)

Restructuring charges 

(7,800)

(21,879)

Stock-based compensation expense

(17,837)

(7,228)

Compensation charges associated with acquisition-related contingent consideration obligations

2,615

(1,673)

Acquisition-related costs

(332)

(695)

Fair value adjustments to acquisition-related contingent consideration

51,910

(12,442)

Costs associated with potential business dispositions

(6,097)

(20,763)

Non-GAAP adjusted selling, general and administrative(1)

$                        492,686

$                        540,266

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Impairment and loss on disposition, net

$                          42,408

$                                638

Impairment and loss on disposition, net

(42,408)

(638)

Non-GAAP adjusted impairment and loss on disposition, net(1)

$                                    -

$                                    -

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Interest and other income (expense), net

$                      (150,523)

$                      (154,112)

Less adjustments:

Restructuring charges 

19

34

Write off of equity investment in BBI

662

-

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

20,940

1,091

Interest accretion associated with acquisition-related compensation charges

(406)

295

Expense associated with extinguishment of debt

3,480

-

Non-GAAP adjusted interest and other income (expense), net(1)

$                      (125,828)

$                      (152,692)

Nine Months Ended September 30, 2015

 Nine Months Ended September 30, 2014 

Provision (benefit) for income taxes

$                        (10,009)

$                          69,273

    Add:  Income tax effects on Non-GAAP adjustments

70,884

(6,678)

Non-GAAP adjusted provision for income taxes, net(1)

$                          60,875

$                          62,595

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Equity earnings of unconsolidated entities, net of tax 

$                          10,320

$                          13,716

Less adjustments:

Amortization of acquisition-related intangible assets

314

430

Loss on sale of equity investment

-

457

Income tax effects on items above

-

-

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax(1)

$                          10,634

$                          14,603

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Income (loss) from discontinued operations, net of taxes

$                        216,777

$                          (4,082)

Less adjustments:

Amortization of acquisition-related intangible assets

559

22,541

Restructuring charges 

(13)

4,039

Goodwill impairment charge

-

17,984

Fair value adjustments to acquisition-related contingent consideration

-

(26,321)

Gain on Divestiture

(366,191)

-

Income tax effects on items above

148,056

(5,857)

Non-GAAP adjusted income (loss) from discontinued operations, net of taxes(1)

$                              (812)

$                             8,304

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Net income (loss) attributable to non-controlling interests, net of tax

$                                386

$                              (136)

Less:  Amortization of acquisition-related intangible assets, net of tax

240

387

Income tax effects on items above

63

88

Non-GAAP adjusted net income attributable to non-controlling interests, net of tax(1)

$                                563

$                                163

(1)  The following is a summary of our non-GAAP adjusted measures included above:

Non-GAAP adjusted net revenue

$                    1,840,230

$                    1,922,963

Non-GAAP adjusted cost of net revenue

$                        932,127

$                        956,362

Non-GAAP adjusted research and development 

$                          79,578

$                        102,987

Non-GAAP adjusted selling, general and administrative

$                        492,686

$                        540,266

Non-GAAP adjusted impairment and loss on dispositions, net

$                                    -

$                                    -

Non-GAAP adjusted interest and other income (expense), net

$                      (125,828)

$                      (152,692)

Non-GAAP adjusted provision for income taxes

$                          60,875

$                          62,595

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax

$                          10,634

$                          14,603

Non-GAAP adjusted income (loss) from discontinued operations, net of tax

$                              (812)

$                             8,304

Non-GAAP adjusted net income attributable to non-controlling interests, net of tax

$                                563

$                                163

Alere Inc. and Subsidiaries

Reconciliations of Gross Profit/Margin to Non-GAAP Adjusted Gross Profit/Margin