Alere Inc. Announces Fourth Quarter 2014 Results

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended December 31, 

2014

2013

Net product sales and services revenue

$               661,806

$               659,039

License and royalty revenue

5,051

14,116

Net revenue

666,857

673,155

Cost of net revenue

356,526

331,217

      Gross profit

310,331

341,938

      Gross margin

47%

51%

Operating expenses:

Research and development

29,973

38,324

Selling, general and administrative

237,793

258,002

Impairment and gain (loss) on dispositions, net

7,104

(761)

      Operating income 

35,461

46,373

Interest and other income (expense), net

(55,889)

(56,293)

Loss from continuing operations before provision

(benefit) for income taxes

(20,428)

(9,920)

Provision (benefit) for income taxes

4,836

(7,082)

Loss from continuing operations before equity earnings

of unconsolidated entities, net of tax

(25,264)

(2,838)

Equity earnings of unconsolidated entities, net of tax

3,793

4,205

Loss from continuing operations

(21,471)

1,367

Income (loss) from discontinued operations, net of tax

(1,444)

(4,679)

Net loss

(22,915)

(3,312)

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

 interests

166

375

Net loss attributable to Alere Inc. and Subsidiaries

(23,081)

(3,687)

Preferred stock dividends

(5,367)

(5,367)

Net loss available to common stockholders

$               (28,448)

$                 (9,054)

Basic and diluted net loss per common

share attributable to Alere Inc. and Subsidiaries:

  Loss from continuing operations

$                   (0.32)

$                   (0.06)

  Income (loss) from discontinued operations

(0.02)

(0.05)

      Net loss per common share

$                   (0.34)

$                   (0.11)

Weighted average shares - basic and diluted

83,586

81,913

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations 

(in thousands, except per share amounts)

Year Ended December 31,

2014

2013

Net product sales and services revenue

$           2,565,640

$           2,592,633

License and royalty revenue

21,050

27,229

Net revenue

2,586,690

2,619,862

Cost of net revenue

1,364,786

1,297,485

      Gross profit

1,221,904

1,322,377

      Gross margin

47%

50%

Operating expenses:

Research and development

144,828

159,053

Selling, general and administrative

975,910

997,796

Impairment and gain (loss) on dispositions, net

7,742

5,124

      Operating income 

93,424

160,404

Interest and other income (expense), net

(211,924)

(266,605)

Loss from continuing operations before provision (benefit)

 for income taxes

(118,500)

(106,201)

Provision (benefit) for income taxes

66,722

(35,359)

Loss from continuing operations before equity earnings

 of unconsolidated entities, net of tax

(185,222)

(70,842)

Equity earnings of unconsolidated entities, net of tax

17,509

17,443

Loss from continuing operations

(167,713)

(53,399)

Income (loss) from discontinued operations, net of taxes

2,637

(16,879)

Net loss

(165,076)

(70,278)

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

30

976

Net loss attributable to Alere Inc. and Subsidiaries

(165,106)

(71,254)

Preferred stock dividends

(21,293)

(21,293)

Net loss available to common stockholders

$            (186,399)

$               (92,547)

Basic and diluted net loss per common share

attributable to Alere Inc. and Subsidiaries:

  Loss from continuing operations

$                   (2.28)

$                   (0.92)

  Income (loss) from discontinued operations

0.03

(0.21)

      Net loss per common share

$                   (2.25)

$                   (1.13)

Weighted average shares - basic and diluted

82,938

81,542

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

December 31,

December 31,

2014

2013

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$                   378,461

$                 355,431

Restricted cash

37,571

3,458

Marketable securities

259

858

Accounts receivable, net

466,106

489,392

Inventories, net

365,165

362,167

Prepaid expenses and other current assets

221,140

184,287

Assets held for sale

306,865

355,530

Total current assets

1,775,567

1,751,123

PROPERTY, PLANT AND EQUIPMENT, NET

456,767

468,232

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4,256,676

4,633,803

RESTRICTED CASH - NON-CURRENT

-

29,370

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

228,030

178,286

Total assets

$               6,717,040

$              7,060,814

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

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

 and capital lease obligations

$                     93,116

$                    55,074

Liabilities related to assets held for sale

126,441

136,920

Other current liabilities

549,648

520,612

Total current liabilities

769,205

712,606

LONG-TERM LIABILITIES:

Long-term debt and capital lease obligations,

 net of current portions

3,631,945

3,786,030

Deferred tax liabilities

363,877

329,249

Other long-term liabilities

164,925

150,081

Total long-term liabilities

4,160,747

4,265,360

TOTAL EQUITY

1,787,088

2,082,848

Total liabilities and equity

$               6,717,040

$              7,060,814

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

Three Months Ended December 31,

2014

2013

Reconciliation to Non-GAAP Adjusted Operating Income ⁽¹⁾

Operating income 

$                  35,461

$                       46,373

Adjustment related to acquired software license contracts 

285

470

Amortization of acquisition-related intangible assets

60,686

70,347

Restructuring charges 

21,622

4,218

Stock-based compensation expense

4,701

6,748

Compensation charges associated with acquisition-related

 contingent consideration obligations

182

762

Acquisition-related costs

179

1,315

Fair value adjustments to acquisition-related contingent consideration

(4,765)

(1,559)

Non-cash charge associated with acquired inventory

-

624

Costs associated with potential business dispositions

5,802

6,134

Costs associated with proxy contest

-

58

Impairment and gain (loss) on dispositions, net

7,104

(761)

Non-GAAP adjusted operating income

$                131,257

$                     134,729

Three Months Ended December 31,

2014

2013

Reconciliation to Non-GAAP Adjusted Net Income⁽¹⁾

Net loss available to common stockholders

$                (28,448)

$                       (9,054)

Adjustment related to acquired software license contracts 

285

470

Amortization of acquisition-related intangible assets

60,689

70,289

Restructuring charges 

21,630

4,231

Stock-based compensation expense

4,701

6,748

Compensation charges associated with acquisition-related contingent consideration obligations

182

762

Acquisition-related costs

179

1,315

Fair value adjustments to acquisition-related contingent consideration

(4,765)

(1,559)

Non-cash charge associated with acquired inventory

-

624

Costs associated with potential business dispositions

5,802

6,134

Costs associated with proxy contest

-

58

 Impairment and gain (loss) on dispositions, net

7,104

(761)

Loss on sale of equity investment

-

-

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

365

364

Interest accretion associated with acquisition-related compensation charges

96

99

Bargain purchase gain associated with the  acquisition of the Liberty business

-

-

Amortization of acquisition-related intangible assets, restructuring and fair value adjustments to acquisition-related contingent consideration - discontinued operations, net of tax

7,552

9,205

Income tax effects on items above

(16,149)

(29,661)

Non-GAAP adjusted net income available to common stockholders

$                  59,223

$                       59,264

Net income (loss) per diluted common share from continuing operations

$                    (0.32)

$                          (0.06)

Net loss per diluted common share from discontinued operations

(0.02)

(0.05)

      Net loss per diluted common share

$                    (0.34)

$                          (0.11)

Non-GAAP adjusted net income per diluted common share  from continuing operations

$                       0.60

$                            0.63

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

0.06

0.05

      Non-GAAP adjusted net income per diluted common share

$                       0.66

$                            0.68

Weighted average shares - diluted

83,586

81,913

Non-GAAP adjusted weighted average shares - diluted

98,409

96,636

⁽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.

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

Year Ended December 31,

2014

2013

Reconciliation to Non-GAAP Adjusted Operating Income ⁽¹⁾

Operating income 

$                  93,424

$                160,404

Adjustment related to acquired software license contracts 

1,401

2,240

Amortization of acquisition-related intangible assets

237,295

280,116

Restructuring charges 

58,696

14,443

Stock-based compensation expense

12,452

21,210

Compensation charges associated with acquisition-related

 contingent consideration obligations

1,855

2,794

Acquisition-related costs

874

3,087

Fair value adjustments to acquisition-related contingent consideration

12,277

14,736

Non-cash charge associated with acquired inventory

-

2,504

Costs associated with potential business dispositions

26,565

6,134

Costs associated with proxy contest

-

5,525

Impairment and gain (loss) on dispositions, net

7,742

5,124

Non-GAAP adjusted operating income

$               452,581

$                518,317

Year Ended December 31,

2014

2013

Reconciliation to Non-GAAP Adjusted Net Income⁽¹⁾

Net loss available to common stockholders

$             (186,399)

$                (92,547)

Adjustment related to acquired software license contracts 

1,401

2,240

Amortization of acquisition-related intangible assets

237,341

280,318

Restructuring charges 

58,738

14,502

Stock-based compensation expense

12,452

21,210

Compensation charges associated with acquisition-related contingent consideration obligations

1,855

2,794

Acquisition-related costs

874

3,087

Fair value adjustments to acquisition-related contingent consideration

12,277

14,736

Non-cash charge associated with acquired inventory

-

2,504

Costs associated with potential business dispositions

26,565

6,134

Costs associated with proxy contest

-

5,525

 Impairment and gain (loss) on dispositions, net

7,742

5,124

Loss on sale of equity investment

457

-

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

1,456

2,490

Interest accretion associated with acquisition-related compensation charges

391

357

Non-cash write-off of an investment 

-

5,110

Bargain purchase gain associated with the  acquisition of the Liberty business

-

(8,023)

Expense associated with extinguishment of debt

-

35,767

Amortization of acquisition-related intangible assets, restructuring and fair value adjustments to acquisition-related contingent consideration - discontinued operations, net of tax

11,776

33,422

Income tax effects on items above

(8,894)

(126,822)

Non-GAAP adjusted net income available to common stockholders

$               178,032

$                207,928

Net loss per diluted common share from continuing operations

$                    (2.28)

$                    (0.92)

Net income (loss) per diluted common share from discontinued operations

0.03

(0.21)

      Net loss per diluted common share

$                    (2.25)

$                    (1.13)

Non-GAAP adjusted net income per diluted common share  from continuing operations

$                      1.90

$                       2.24

Non-GAAP adjusted net income per diluted common share  from discontinued operations

0.17

0.17

      Non-GAAP adjusted net income per diluted common share

$                      2.07

$                       2.41

Weighted average shares - diluted

82,938

81,542

Non-GAAP adjusted weighted average shares - diluted

87,397

95,952

⁽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.

Alere Inc. and Subsidiaries

Selected Consolidated Revenues by Business Area ⁽¹⁾

(in thousands)

Professional Diagnostics Segment

% Change

% Change

Q4 2014

YTD 2014

Q4 2013

YTD 2013

Q4 14 v. Q4 13

YTD 14 v. YTD 13

Infectious disease

$                  203,504

$                  710,514

$                  202,923

$                  723,213

0%

-2%

Toxicology

149,241

627,755

151,258

632,727

-1%

-1%

Cardiology

109,665

441,582

113,632

463,281

-3%

-5%

Diabetes

46,051

197,476

47,350

225,488

-3%

-12%

Other ⁽¹⁾

90,271

342,574

85,504

321,495

6%

7%

Professional diagnostics net product sales and services revenue ⁽¹⁾

598,732

2,319,901

600,667

2,366,204

0%

-2%

License and royalty revenue

5,051

19,738

13,415

24,933

-62%

-21%

Professional diagnostics net revenue

$                  603,783

$              2,339,639

$                  614,082

$              2,391,137

-2%

-2%

Health Information Solutions Segment

% Change

% Change

Q4 2014

YTD 2014

Q4 2013

YTD 2013

Q4 14 v. Q4 13

YTD 14 v. YTD 13

Condition and case management

$                      4,079

$                    16,818

$                      4,119

$                    15,359

-1%

9%

Wellness

675

3,499

1,239

5,369

-46%

-35%

Patient self-testing services

29,980

116,779

25,483

102,919

18%

13%

Health information solutions net revenue

$                    34,734

$                  137,096

$                    30,841

$                  123,647

13%

11%

⁽¹⁾Revenues are presented in accordance with generally accepted accounting principles and exclude an adjustment of $0.3 million and $1.4 million, and $0.5 million and $2.2 million related to acquired software license contracts which were not recognized during the three and twelve months ended December 31, 2014 and 2013, 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 December 31, 2014

Operating Segment

Professional
Diagnostics

Health
Information
Solutions

Consumer
Diagnostics

Corporate

Total

Net revenue 

$          603,784

$             34,734

$             28,339

$                      -

$          666,857

Adjustment related to acquired software license contracts⁽¹⁾

285

-

-

-

285

Non-GAAP adjusted net revenue

$          604,069

$             34,734

$             28,339

$                      -

$          667,142

Operating income (loss) 

$             44,096

$             (3,226)

$               6,947

$          (12,356)

$             35,461

Adjustment related to acquired software license contracts⁽¹⁾

285

-

-

-

285

Amortization of acquisition-related intangible assets

63,006

1,138

(2,168)

(1,290)

60,686

Restructuring charges 

14,701

13

-

6,908

21,622

Stock-based compensation expense

-

-

-

4,701

4,701

Compensation charges associated with acquisition-related contingent consideration obligations

182

-

-

-

182

Acquisition-related costs

-

-

-

179

179

Fair value adjustments to acquisition-related contingent consideration

1,435

600

-

(6,800)

(4,765)

Costs associated with potential business dispositions

133

5,669

-

-

5,802

 Impairment and gain (loss) on dispositions, net

7,104

-

-

-

7,104

Non-GAAP adjusted operating income (loss)

$          130,942

$               4,194

$               4,779

$             (8,658)

$          131,257

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

21.7%

12.1%

16.9%

19.7%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the fourth quarter of 2014 due to business combination accounting rules.

For the Three Months Ended December 31, 2013

Operating Segment

Professional
Diagnostics

Health
Information
Solutions

Consumer
Diagnostics

Corporate

Total

Net revenue 

$          614,082

$             30,841

$             28,232

$                      -

$          673,155

Adjustment related to acquired software license contracts⁽¹⁾

470

-

-

-

470

Non-GAAP adjusted net revenue

$          614,552

$             30,841

$             28,232

$                      -

$          673,625

Operating income (loss) 

$             70,161

$             (3,333)

$               3,091

$          (23,546)

$             46,373

Adjustment related to acquired software license contracts⁽¹⁾

470

-

-

-

470

Amortization of acquisition-related intangible assets

69,894

(5)

458

-

70,347

Non-cash charge associated with acquired inventory

624

-

-

-

624

Restructuring charges 

3,444

774

-

-

4,218

Stock-based compensation expense

-

-

-

6,748

6,748

Compensation charges associated with acquisition-related contingent consideration obligations

762

-

-

-

762

Acquisition-related costs

-

-

-

1,315

1,315

Fair value adjustments to acquisition-related contingent consideration

(2,859)

1,100

-

200

(1,559)

Costs associated with proxy contest

-

-

-

58

58

Costs associated with potential business dispositions

6,134

-

-

-

6,134

Gain on disposition

(761)

-

-

-

(761)

Non-GAAP adjusted operating income (loss)

$          147,869

$             (1,464)

$               3,549

$          (15,225)

$          134,729

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

24.1%

-4.7%

12.6%

20.0%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the fourth quarter of 2013 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 Year Ended December 31, 2014

Operating Segment

Professional
Diagnostics

Health
Information
Solutions

Consumer
Diagnostics

Corporate

Total

Net revenue 

$         2,339,639

$             137,096

$             109,955

$                         -

$         2,586,690

Adjustment related to acquired software license contracts⁽¹⁾

1,401

-

-

-

1,401

Non-GAAP adjusted net revenue

$         2,341,040

$             137,096

$             109,955

$                         -

$         2,588,091

Operating income (loss) 

$             163,434

$               (1,197)

$               17,566

$             (86,379)

$               93,424

Adjustment related to acquired software license contracts⁽¹⁾

1,401

-

-

-

1,401

Amortization of acquisition-related intangible assets

233,693

5,089

(1,530)

43

237,295

Restructuring charges 

44,272

188

-

14,236

58,696

Stock-based compensation expense

-

-

-

12,452

12,452

Compensation charges associated with acquisition-related contingent consideration obligations

1,855

-

-

-

1,855

Acquisition-related costs

-

-

-

874

874

Fair value adjustments to acquisition-related contingent consideration

18,238

(2,561)

-

(3,400)

12,277

Costs associated with potential business dispositions

20,578

5,987

-

-

26,565

 Impairment and gain (loss) on dispositions, net

7,742

-

-

-

7,742

Non-GAAP adjusted operating income (loss)

$             491,213

$                  7,506

$               16,036

$             (62,174)

$             452,581

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

21.0%

5.5%

14.6%

17.5%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the year ended December 31, 2014 due to business combination accounting rules.

For the Year Ended December 31, 2013

Operating Segment

Professional
Diagnostics

Health
Information
Solutions

Consumer
Diagnostics

Corporate

Total

Net revenue

$         2,391,137

$             123,647

$             105,078

$                         -

$         2,619,862

Adjustment related to acquired software license contracts⁽¹⁾

2,240

-

-

-

2,240

Non-GAAP adjusted net revenue

$         2,393,377

$             123,647

$             105,078

$                         -

$         2,622,102

Operating income (loss) 

$             256,086

$             (17,349)

$               12,122

$             (90,455)

$             160,404

Adjustment related to acquired software license contracts⁽¹⁾

2,240

-

-

-

2,240

Amortization of acquisition-related intangible assets

271,711

6,494

1,911

-

280,116

Restructuring charges 

12,606

1,837

-

-

14,443

Stock-based compensation expense

-

-

-

21,210

21,210

Compensation charges associated with acquisition-related contingent consideration obligations

2,794

-

-

-

2,794

Non-cash charge associated with acquired inventory

2,504

-

-

-

2,504

Acquisition-related costs

-

-

-

3,087

3,087

Fair value adjustments to acquisition-related contingent consideration

10,050

3,586

-

1,100

14,736

Costs associated with proxy contest

-

-

-

5,525

5,525

Costs associated with potential business dispositions

6,134

-

-

-

6,134

Loss on disposition

5,124

-

-

-

5,124

Non-GAAP adjusted operating income (loss)

$             569,249

$               (5,432)

$               14,033

$             (59,533)

$             518,317

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

23.8%

-4.4%

13.4%

19.8%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the year ended December 31, 2013 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
December 31, 2014

Three Months Ended
December 31, 2013

Net revenue 

$                           666,857

$                           673,155

Adjustment related to acquired software license contracts 

285

470

Non-GAAP adjusted net revenue

$                           667,142

$                           673,625

Cost of net revenue

$                           356,526

$                           331,217

Less adjustments:

Amortization of acquisition-related intangible assets

(17,269)

(15,328)

Restructuring charges 

(5,053)

(2,253)

Stock-based compensation expense

(317)

(329)

Non-cash charge associated with acquired inventory

-

(624)

Non-GAAP adjusted cost of net revenue

$                           333,887

$                           312,683

Non-GAAP adjusted gross profit

$                           333,255

$                           360,942

Three Months Ended
December 31, 2014

Three Months Ended
December 31, 2013

Research and development 

$                             29,973

$                             38,324

Less adjustments:

Amortization of acquisition-related intangible assets

(2,755)

(1,206)

Restructuring charges 

(1,312)

(50)

Stock-based compensation expense

(299)

(1,413)

Non-GAAP adjusted research and development

$                             25,607

$                             35,655

Three Months Ended
December 31, 2014

Three Months Ended
December 31, 2013

Selling, general and administrative

$                           237,793

$                           258,002

Less adjustments:

Amortization of acquisition-related intangible assets