Alere Inc. Announces Fourth Quarter 2010 Results

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in $000s)

December 31,

December 31,

2010

2009

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$      401,306

$      492,773

Restricted cash

2,581

2,424

Marketable securities

2,094

947

Accounts receivable, net

397,148

354,453

Inventories, net

257,720

221,539

Prepaid expenses and other current assets

133,408

140,674

Assets held for sale

-

54,148

Total current assets

1,194,257

1,266,958

PROPERTY, PLANT AND EQUIPMENT, NET

390,510

324,388

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4,567,064

5,193,429

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

178,543

159,217

Total assets

$   6,330,374

$   6,943,992

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of notes payable

$        19,017

$        19,869

Liabilities related to assets held for sale

-

11,558

Current portion of deferred gain on joint venture

288,378

-

Other current liabilities

475,463

406,587

Total current liabilities

782,858

438,014

LONG-TERM LIABILITIES:

Notes payable, net of current portion

2,379,968

2,129,455

Deferred tax liability

420,166

442,049

Other long-term liabilities

169,656

405,585

Total long-term liabilities

2,969,790

2,977,089

TOTAL EQUITY

2,577,726

3,528,889

Total liabilities and equity

$   6,330,374

$   6,943,992

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)

Year Ended December 31, 2010

Year Ended December 31, 2009

Non-GAAP

Non-GAAP

Adjusted

Adjusted

Non-GAAP

Cash

Non-GAAP

Cash

GAAP

Adjustments

Basis (a)

GAAP

Adjustments

Basis (a)

Net product sales and services revenue

$  2,134,588

$                    -

$  2,134,588

$ 1,893,566

$                    -

$  1,893,566

License and royalty revenue

20,759

-

20,759

29,075

-

29,075

Net revenue

2,155,347

-

2,155,347

1,922,641

-

1,922,641

Cost of net revenue

1,020,760

(75,404)

(b) (c) (d) (e)

945,356

868,419

(55,605)

(b) (c) (d) (f)

812,814

     Gross profit

1,134,587

75,404

1,209,991

1,054,222

55,605

1,109,827

     Gross margin

53%

56%

55%

58%

Operating expenses:

Research and development

133,278

(12,370)

(b) (c) (d)

120,908

112,848

(10,680)

(b) (c) (d)

102,168

Selling, general and administrative

946,041

(333,265)

(b) (c) (d) (g) (i) (j) (q)

612,776

798,679

(258,302)

(b) (c) (d) (g) (j) (q)

540,377

Goodwill impairment charge

1,006,357

(1,006,357)

(h)

-

-

-

-

Gain on disposition

-

-

-

(3,355)

3,355

(m)

-

     Operating income

(951,089)

1,427,396

476,307

146,050

321,232

467,282

Interest and other income (expense), net

(116,697)

(3,042)

(c) (g)

(119,739)

(105,802)

(35)

(c) (n) (o) (p)

(105,837)

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

(1,067,786)

1,424,354

356,568

40,248

321,197

361,445

Provision (benefit) for income taxes

(29,931)

144,214

(r)

114,283

15,627

110,398

(r)

126,025

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

(1,037,855)

1,280,140

242,285

24,621

210,799

235,420

Equity earnings of unconsolidated entities, net of tax

10,566

3,750

(b) (c)

14,316

7,626

6,226

(b) (c)

13,852

Income (loss) from continuing operations

(1,027,289)

1,283,890

256,601

32,247

217,025

249,272

Income (loss) from discontinued operations, net of tax

11,397

191

(k)

11,588

1,934

1,226

(k) (b)

3,160

Net income (loss)

(1,015,892)

1,284,081

268,189

34,181

218,251

252,432

Less: Net income attributable to non-controlling interests, net of tax

1,418

3,714

(l)

5,132

465

-

465

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

$ (1,017,310)

$       1,280,367

$     263,057

$      33,716

$          218,251

$     251,967

Preferred stock dividends

$      (24,235)

$     (24,235)

$    (22,972)

$     (22,972)

Net income (loss) available to common stockholders

$ (1,041,545)

$     238,822

$      10,744

$     228,995

Basic net income (loss) per common share attributable to Alere Inc. and Subsidiaries:

Basic income (loss) per common share from continuing operations

$        (12.47)

$           2.69

$          0.11

$           2.80

Basic income (loss) per common share from discontinued operations

$           0.14

$           0.14

$          0.02

$           0.04

Basic net income (loss) per common share

$        (12.33)

$           2.83

$          0.13

$           2.84

Diluted net income (loss) per common share attributable to Alere Inc. and Subsidiaries:

Diluted income (loss) per common share from continuing operations

$        (12.47)

(s)

$           2.51

(u)

$          0.11

(t)

$           2.60

(v)

Diluted income (loss) per common share from discontinued operations

$           0.14

(s)

$           0.11

(u)

$          0.02

(t)

$           0.03

(v)

Diluted net income (loss) per common share

$        (12.33)

(s)

$           2.63

(u)

$          0.13

(t)

$           2.63

(v)

Weighted average common shares - basic

84,445

84,445

80,572

80,572

Weighted average common shares - diluted

84,445

(s)

101,284

(u)

81,967

(t)

96,845

(v)

(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or 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 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 net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" 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 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, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Amortization expense of $299.4 million and $257.2 million for the year 2010 and 2009 GAAP results, respectively, including $63.0 million and $42.1 million charged to cost of sales, $4.8 million and $4.4 million charged to research and development, $230.7 million and $209.6 million charged to selling, general and administrative, with $0.9 million and $0.9 million charged through equity earnings of unconsolidated entities, net of tax during each of the respective periods. Amortization associated with discontinued operations amounted to $0.2 million  ($0.2 million, net of tax) for the year 2009. (See also footnote l below.)

(c) Restructuring charge associated with the decision to close facilities of $15.1 million and $23.4 million for the year 2010 and 2009 GAAP results, respectively.  The $15.1 million charge for the year ended December 31, 2010 included $3.9 million charged to cost of sales, $0.5 million charged to research and development, $10.9 million charged to selling, general and administrative expense, a net recovery of $3.1 million recorded to interest and other income (expense), net and $3.0 million charged through equity earnings of unconsolidated entities, net of tax.  The $23.4 million charge for the year ended December 31, 2009 included $9.5 million charged to cost of sales, $1.1 million charged to research and development, $6.8 million charged to selling, general and administrative expense, $0.7 million charged to interest expense and $5.3 million charged through equity earnings of unconsolidated entities, net of tax.

(d) Compensation costs of $29.9 million and $28.2 million associated with stock-based compensation expense for the year 2010 and 2009 GAAP results, respectively, including $1.9 million and $2.0 million charged to cost of sales, $7.1 million and $5.2 million charged to research and development and $20.9 million and $21.0 million charged to selling, general and administrative.

(e) A write-off in the amount of $6.6 million during the year ended December 31, 2010, relating to inventory write-ups recorded in connection with acquisitions.  (See also footnote l below.)

(f) A write-off in the amount of $2.0 million during the year ended December 31, 2009, relating to an inventory write-up recorded in connection with an acquisition during the third quarter of 2009.

(g) Acquisition-related costs in the amount of $8.3 million and $15.9 million for the year 2010 and 2009 GAAP results, respectively, recorded in connection with ASC 805, Business Combinations. The $8.3 million of acquisition-related costs recorded during 2010 included $8.2 million charged to selling, general and administrative and $0.1 million charged to interest expense.

(h) A goodwill impairment charge during the fourth quarter of 2010 in the amount of $1.0 billion related to our health management reporting unit and business segment.

(i) A $60.1 million compensation charge associated with our acquisition of minority shares of Standard Diagnostics, Inc. during the fourth quarter of 2010.

(j) $1.8 million of expense for both the year 2010 and 2009 GAAP results, respectively, recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(k) Expenses of $0.3 million ($0.2 million, net of tax) and $1.8 million ($1.1 million, net of tax) for the year 2010 and 2009 GAAP results, respectively, incurred in connection with the sale of our vitamins and nutritional supplements business.

(l) Amortization expense of $3.2 million ($2.4 million, net of tax) and a write-off in the amount of $1.7 million ($1.3 million, net of tax) relating to inventory write-ups attributable to operating results of non-controlling interests.

(m) A $3.4 million gain associated with management's decision to dispose of our Diamics, Inc. operations.

(n) A $2.9 million net realized foreign currency gain associated with restricted cash established in connection with the acquisition of Concateno plc.

(o) A $1.9 million compensation-related charge recorded in connection with the acquisition of Concateno plc.

(p) A $0.3 million loss recorded in connection with the deferred payment of a portion of the ACON Second Territory Business purchase price consideration to be paid with our common stock.

(q) A $0.7 million and $3.2 million fair value write-down in the fourth quarter of 2010 and 2009, respectively, recorded in connection with an idle facility.

(r) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f), (g), (h), (i), (j), (m), (n), (o), (p) and (q).

(s) For the year ended December 31, 2010, potential dilutive shares were not used in the calculation of diluted net income per common share under GAAP because inclusion thereof would be antidilutive.

(t) Included in the weighted average diluted common shares for the calculation of net income per common share on a GAAP basis for the year ended December 31, 2009, are dilutive shares consisting of 1,395,000 common stock equivalent shares from the potential exercise of stock options and warrants. Potential dilutive shares consisting of 3,426,000 common stock equivalent shares from the potential conversion of convertible debt securities, 386,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business and potential dilutive shares consisting of 11,066,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share on a GAAP basis for the year ended December 31, 2009 because inclusion thereof would be antidilutive.

(u) Included in the weighted average diluted common shares for the calculation of net income per common share for the year ended December 31, 2010, on an adjusted cash basis, were dilutive shares consisting of 1,412,000 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, 11,654,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock, 306,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business and 28,000 potentially issuable shares of common stock associated with contingent consideration arrangements. The diluted net income per common share calculation for the year ended December 31, 2010, on an adjusted cash basis, included the add back of interest expense related to the convertible debt of $2.8 million, the add back of $24.2 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $0.3 million resulting in net income available to common stockholders of $266.0 million for the year ended December 31, 2010.

(v) Included in the weighted average diluted common shares for the calculation of net income per common share for the year ended December 31, 2009, on an adjusted cash basis, are dilutive shares consisting of 1,395,000 common stock equivalent shares from the potential exercise of stock options and warrants.  Also included were potential dilutive shares consisting of 3,426,000 common stock equivalent shares from the potential conversion of convertible debt securities, 11,066,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock and 386,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. The diluted net income per common share calculation for the year ended December 31, 2009, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $2.8 million, the add back of $23.0 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $0.4 million resulting in net income available to common stockholders of $255.1 million for the year ended December 31, 2009.

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)

Three Months Ended December 31, 2010

Three Months Ended December 31, 2009

Non-GAAP

Non-GAAP

Adjusted

Adjusted

Non-GAAP

Cash

Non-GAAP

Cash

GAAP

Adjustments

Basis (a)

GAAP

Adjustments

Basis (a)

Net product sales and services revenue

$     573,747

$                    -

$     573,747

$ 537,684

$                    -

$     537,684

License and royalty revenue

4,707

-

4,707

8,487

-

8,487

Net revenue

578,454

578,454

546,171

-

546,171

Cost of net revenue

275,368

(17,077)

(b) (c) (d) (e)

258,291

244,592

(16,876)

(b) (c) (d) (f)

227,716

     Gross profit

303,086

17,077

320,163

301,579

16,876

318,455

     Gross margin

52%

55%

55%

58%

Operating expenses:

Research and development

37,091

(2,973)

(b) (d)

34,118

32,037

(2,887)

(b) (c) (d)

29,150

Selling, general and administrative

292,870

(133,250)

(b) (c) (d) (h) (i) (j) (l)

159,620

234,422

(75,845)

(b) (c) (d) (i) (j) (l)

158,577

Goodwill impairment charge

1,006,357

(1,006,357)

(g)

-

-

-

-

  Total operating expenses

1,336,318

(1,142,580)

193,738

266,459

(78,732)

187,727

     Operating income

(1,033,232)

1,159,657

126,425

35,120

95,608

130,728

Interest and other income (expense), net

(30,457)

(87)

(c)

(30,544)

(34,728)

196

(c)

(34,532)

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

(1,063,689)

1,159,570

95,881

392

95,804

96,196

(Benefit) provision for income taxes

(28,967)

55,064

(n)

26,097

2,726

31,271

(n)

33,997

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

(1,034,722)

1,104,506

69,784

(2,334)

64,533

62,199

Equity earnings of unconsolidated entities, net of tax

2,371

38

(b) (c)

2,409

2,087

1,629

(b) (c)

3,716

(Loss) income from continuing operations

(1,032,351)

1,104,544

72,193

(247)

66,162

65,915

(Loss) income from discontinued operations, net of tax

(516)

11

(m)

(505)

3,034

1,129

(b) (m)

4,163

Net (loss) income

(1,032,867)

1,104,555

71,688

2,787

67,291

70,078

Less: Net income attributable to non-controlling interests, net of tax

251

251

(k)

502

-

-

-

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

$ (1,033,118)

$       1,104,304

$       71,186

$     2,787

$            67,291

$       70,078

Preferred stock dividends

$        (6,234)

$       (6,234)

$   (5,916)

$       (5,916)

Net (loss) income available to common stockholders

$ (1,039,352)

$       64,952

$   (3,129)

$       64,162

Basic net (loss) income per common share attributable to Alere Inc. and Subsidiaries:

Basic (loss) income per common share from continuing operations

$        (12.23)

$           0.77

$     (0.08)

$           0.72

Basic (loss) income per common share from discontinued operations

$          (0.01)

$         (0.01)

$       0.04

$           0.05

Basic net (loss) income per common share

$        (12.24)

$           0.76

$     (0.04)

$           0.77

Diluted net (loss) income per common share attributable to Alere Inc. and Subsidiaries:

Diluted (loss) income per common share from continuing operations

$        (12.23)

(o)

$           0.71

(p)

$     (0.08)

(o)

$           0.67

(q)

Diluted (loss) income per common share from discontinued operations

$          (0.01)

(o)

$         (0.01)

(p)

$       0.04

(o)

$           0.04

(q)

Diluted net (loss) income per common share

$        (12.24)

(o)

$           0.71

(p)

$     (0.04)

(o)

$           0.71

(q)

Weighted average common shares - basic

84,924

84,924

83,211

83,211

Weighted average common shares - diluted

84,924

(o)

101,670

(p)

83,211

(o)

100,431

(q)

(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or 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 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 net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" 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 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, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Amortization expense of $78.7 million and $71.9 million in the fourth quarter of 2010 and 2009 GAAP results, respectively, including $16.3 million and $11.6 million charged to cost of sales, $1.3 million and $1.2 million charged to research and development, $60.9 million and $58.8 million charged to selling, general and administrative, with $0.2 million and $0.3 million charged through equity earnings of unconsolidated entities, net of tax, during each of the respective quarters. Amortization associated with discontinued operations amounted to $0.1 million ($33.0 thousand, net of tax) during the fourth quarter of 2009. (See also footnote k below.)

(c) Restructuring charge associated with the decision to close facilities of $1.6 million and $6.9 million in the fourth quarter of 2010 and 2009 GAAP results, respectively.  The $1.6 million charge for the three months ended December 31, 2010 included $0.6 million charged to cost of sales, $1.3 million charged to selling, general and administrative expense, a net recovery of $0.1 million recorded to interest and other income (expense), net and a net recovery of $0.2 million recorded through equity earnings of unconsolidated entities, net of tax.  The $6.9 million charge for the three months ended December 31, 2009 included $3.4 million charged to cost of sales, $0.2 million charged to research and development, $1.8 million charged to selling, general and administrative expense, $0.2 million charged to interest expense and $1.3 million charged through equity earnings of unconsolidated entities, net of tax.

(d) Compensation costs of $6.9 million and $7.9 million associated with stock-based compensation expense for the fourth quarter of 2010 and 2009 GAAP results, respectively, including $0.5 million and $0.5 million charged to cost of sales, $1.7 million and $1.5 million charged to research and development and $4.7 million and $5.9 million charged to selling, general and administrative, in the respective periods.

(e) A net recovery in the amount of $0.3 million during the fourth quarter of 2010, relating to inventory write-ups recorded in connection with acquisitions. (See also footnote k below.)

(f) A write-off in the amount of $1.4 million during the fourth quarter of 2009, relating to inventory write-ups recorded in connection with acquisitions.  

(g) A goodwill impairment charge during the fourth quarter of 2010 in the amount of $1.0 billion related to our health management reporting unit and business segment.

(h) A $60.1 million compensation charge associated with our acquisition of minority shares of Standard Diagnostics, Inc. during the fourth quarter of 2010.

(i) Acquisition-related costs in the amount of $1.4 million and $4.3 million in the fourth quarter of 2010 and 2009 GAAP results, respectively, recorded in connection with ASC 805, Business Combinations.

(j) $4.1 million and $1.8 million of expense in the fourth quarter of 2010 and 2009 GAAP results, respectively, recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(k) Amortization expense of $0.3 million ($0.3 million, net of tax) attributable to operating results of non-controlling interests.

(l) A $0.7 million and $3.2 million fair value write-down in the fourth quarter of 2010 and 2009, respectively, recorded in connection with an idle facility.

(m) Expenses of $18.0 thousand ($11.0 thousand, net of tax) and $1.8 million ($1.1 million, net of tax) in the fourth quarter of 2010 and 2009, respectively, incurred in connection with the sale of our vitamins and nutritional supplements business.

(n) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f) (g), (h), (i), (j) and (l).

(o) For the three months ended December 31, 2010 and 2009, potential dilutive shares were not used in the calculation of diluted net loss per common share under GAAP because inclusion thereof would be antidilutive.

(p) Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended December 31, 2010, on an adjusted cash basis, were dilutive shares consisting of 1,188,000 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, 11,893,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock, 115,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business and 112,000 potentially issuable shares of common stock associated with contingent consideration arrangements. The diluted net income per common share calculation for the three months ended December 31, 2010, on an adjusted cash basis, included the add back of interest expense related to the convertible debt of $0.7 million, the add back of $6.2 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $24.0 thousand resulting in net income available to common stockholders of $71.8 million for the three months ended December 31, 2010.

(q) Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended December 31, 2009, on an adjusted cash basis, are dilutive shares consisting of 1,922,000 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, 11,286,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock and 573,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. The diluted net income per common share calculation for the three months ended December 31, 2009, on an adjusted cash basis, includes the add back of interest expense related to the convertible debt of $0.7 million, the add back of $5.9 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $0.1 million resulting in net income available to common stockholders of $70.9 million for the three months ended December 31, 2009.