Alere Inc. Announces Third Quarter 2014 Results

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended September 30, 

2014

2013

Net product sales and services revenue

$               732,064

$               749,136

License and royalty revenue

4,182

4,184

Net revenue

736,246

753,320

Cost of net revenue

393,387

384,003

      Gross profit

342,859

369,317

      Gross margin

47%

49%

Operating expenses:

Research and development

38,726

40,498

Selling, general and administrative

266,521

297,350

Loss on disposition

-

5,885

      Operating income 

37,612

25,584

Interest and other income (expense), net

(60,741)

(62,288)

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

(23,129)

(36,704)

Provision (benefit) for income taxes

76,648

(14,980)

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

(99,777)

(21,724)

Equity earnings of unconsolidated entities, net of tax

6,277

5,753

Loss from continuing operations

(93,500)

(15,971)

Income (loss) from discontinued operations, net of tax

7,045

(3,118)

Net loss

(86,455)

(19,089)

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

(306)

359

Net loss attributable to Alere Inc. and Subsidiaries

(86,149)

(19,448)

Preferred stock dividends

(5,367)

(5,367)

Net loss available to common stockholders

$               (91,516)

$               (24,815)

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

  Loss from continuing operations

$                   (1.19)

$                   (0.27)

  Income (loss) from discontinued operations

0.09

(0.03)

      Net loss per common share

$                   (1.10)

$                   (0.30)

Weighted average shares - basic and diluted

83,115

81,735

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations 

(in thousands, except per share amounts)

Nine Months Ended September 30,

2014

2013

Net product sales and services revenue

$           2,173,825

$           2,242,220

License and royalty revenue

15,999

13,113

Net revenue

2,189,824

2,255,333

Cost of net revenue

1,154,057

1,136,846

      Gross profit

1,035,767

1,118,487

      Gross margin

47%

50%

Operating expenses:

Research and development

114,855

120,860

Selling, general and administrative

857,525

882,527

Loss on disposition

638

5,885

      Operating income 

62,749

109,215

Interest and other income (expense), net

(157,564)

(211,532)

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

(94,815)

(102,317)

Provision (benefit) for income taxes

63,109

(30,359)

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

(157,924)

(71,958)

Equity earnings of unconsolidated entities, net of tax

13,716

13,238

Loss from continuing operations

(144,208)

(58,720)

Income (loss) from discontinued operations, net of taxes

2,047

(8,246)

Net loss

(142,161)

(66,966)

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

(136)

601

Net loss attributable to Alere Inc. and Subsidiaries

(142,025)

(67,567)

Preferred stock dividends

(15,926)

(15,926)

Net loss available to common stockholders

$            (157,951)

$               (83,493)

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

  Loss from continuing operations

$                   (1.93)

$                   (0.92)

  Income (loss) from discontinued operations

0.02

(0.11)

      Net loss per common share

$                   (1.91)

$                   (1.03)

Weighted average shares - basic and diluted

82,719

81,417

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

September 30,

December 31,

2014

2013

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$                   444,853

$                 361,626

Restricted cash

38,156

6,273

Marketable securities

794

858

Accounts receivable, net

517,434

547,860

Inventories, net

362,102

364,185

Prepaid expenses and other current assets

161,677

190,015

Assets held for sale

2,143

19,052

Total current assets

1,527,159

1,489,869

PROPERTY, PLANT AND EQUIPMENT, NET

526,922

543,877

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4,579,501

4,818,836

RESTRICTED CASH - NON-CURRENT

-

29,370

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

175,039

178,862

Total assets

$               6,808,621

$              7,060,814

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

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

$                     93,037

$                    55,967

Liabilities related to assets held for sale

2,186

28,327

Other current liabilities

621,663

614,627

Total current liabilities

716,886

698,921

LONG-TERM LIABILITIES:

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

3,696,438

3,787,195

Deferred tax liabilities

310,330

329,249

Other long-term liabilities

192,686

162,601

Total long-term liabilities

4,199,454

4,279,045

TOTAL EQUITY

1,892,281

2,082,848

Total liabilities and equity

$               6,808,621

$              7,060,814

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

Three Months Ended September 30,

2014

2013

Reconciliation to Non-GAAP Adjusted Operating Income ⁽¹⁾

Operating income 

$                  37,612

$                       25,584

Adjustment related to acquired software license contracts 

324

535

Amortization of acquisition-related intangible assets

65,853

81,963

Restructuring charges 

17,726

7,694

Stock-based compensation expense

3,167

5,662

Compensation charges associated with acquisition-related contingent consideration obligations

670

762

Acquisition-related costs

325

450

Fair value adjustments to acquisition-related contingent consideration

(5,537)

1,819

Non-cash charge associated with acquired inventory

-

708

Costs associated with potential business dispositions

6,203

-

Costs associated with proxy contest

-

5,467

Loss on disposition

-

5,885

Non-GAAP adjusted operating income

$                126,343

$                     136,529

Three Months Ended September 30,

2014

2013

Reconciliation to Non-GAAP Adjusted Net Income⁽¹⁾

Net loss available to common stockholders

$                (91,516)

$                     (24,815)

Adjustment related to acquired software license contracts 

324

535

Amortization of acquisition-related intangible assets

65,858

82,019

Restructuring charges 

17,869

7,805

Stock-based compensation expense

3,167

5,662

Compensation charges associated with acquisition-related contingent consideration obligations

670

762

Acquisition-related costs

325

450

Fair value adjustments to acquisition-related contingent consideration

(5,537)

1,819

Non-cash charge associated with acquired inventory

-

708

Costs associated with potential business dispositions

6,203

-

Costs associated with proxy contest

-

5,467

Loss on disposition

-

5,885

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

363

364

Interest accretion associated with acquisition-related compensation charges

102

98

Bargain purchase gain associated with the  acquisition of the Liberty business

-

39

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

(10,903)

727

Income tax effects on items above

50,527

(37,455)

Non-GAAP adjusted net income available to common stockholders

$                  37,909

$                       50,070

Net loss per diluted common share from continuing operations

$                    (1.19)

$                          (0.27)

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

0.09

(0.03)

      Net loss per diluted common share

$                    (1.10)

$                          (0.30)

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

$                       0.48

$                            0.61

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

(0.04)

(0.02)

      Non-GAAP adjusted net income per diluted common share

$                       0.44

$                            0.59

Weighted average shares - diluted

83,115

81,735

Non-GAAP adjusted weighted average shares - diluted

87,930

95,830

⁽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)

Nine Months Ended September 30,

2014

2013

Reconciliation to Non-GAAP Adjusted Operating Income ⁽¹⁾

Operating income 

$                  62,749

$                109,215

Adjustment related to acquired software license contracts 

1,116

1,770

Amortization of acquisition-related intangible assets

197,726

236,418

Restructuring charges 

40,771

19,630

Stock-based compensation expense

7,751

14,462

Compensation charges associated with acquisition-related contingent consideration obligations

1,673

2,032

Acquisition-related costs

695

1,772

Fair value adjustments to acquisition-related contingent consideration

17,042

16,295

Non-cash charge associated with acquired inventory

-

1,880

Costs associated with potential business dispositions

20,763

-

Costs associated with proxy contest

-

5,467

Loss on disposition

638

5,885

Non-GAAP adjusted operating income

$               350,924

$                414,826

Nine Months Ended September 30,

2014

2013

Reconciliation to Non-GAAP Adjusted Net Income⁽¹⁾

Net loss available to common stockholders

$             (157,951)

$                (83,493)

Adjustment related to acquired software license contracts 

1,116

1,770

Amortization of acquisition-related intangible assets

197,769

236,678

Restructuring charges 

41,147

19,858

Stock-based compensation expense

7,751

14,462

Compensation charges associated with acquisition-related contingent consideration obligations

1,673

2,032

Acquisition-related costs

695

1,772

Fair value adjustments to acquisition-related contingent consideration

17,042

16,295

Non-cash charge associated with acquired inventory

-

1,880

Costs associated with potential business dispositions

20,763

-

Costs associated with proxy contest

-

5,467

Loss on disposition

638

5,885

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

1,091

2,126

Interest accretion associated with acquisition-related compensation charges

295

258

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 and fair value adjustments to acquisition-related contingent consideration - discontinued operations

(11,073)

2,181

Income tax effects on items above

(2,605)

(111,362)

Non-GAAP adjusted net income available to common stockholders

$               118,808

$                148,663

Net loss per diluted common share from continuing operations

$                    (1.93)

$                    (0.92)

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

0.02

(0.11)

      Net loss per diluted common share

$                    (1.91)

$                    (1.03)

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

$                      1.49

$                       1.81

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

0.10

(0.06)

      Non-GAAP adjusted net income per diluted common share

$                      1.39

$                       1.75

Weighted average shares - diluted

82,719

81,417

Non-GAAP adjusted weighted average shares - diluted

87,312

95,244

⁽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

Q3 2014

YTD 2014

Q3 2013

YTD 2013

Q3 14 v. Q3 13

YTD 14 v. YTD 13

Infectious disease

$                  177,339

$                  507,010

$                  172,739

$                  520,289

3%

-3%

Toxicology

161,940

478,514

166,536

481,469

-3%

-1%

Cardiology

108,501

331,917

116,281

349,650

-7%

-5%

Diabetes

49,477

151,425

53,150

178,138

-7%

-15%

Other ⁽¹⁾

84,501

252,303

78,607

235,992

7%

7%

Professional diagnostics net product sales and services revenue ⁽¹⁾

581,758

1,721,169

587,313

1,765,538

-1%

-3%

License and royalty revenue

4,183

14,687

3,488

11,517

20%

28%

Professional diagnostics net revenue

$                  585,941

$              1,735,856

$                  590,801

$              1,777,055

-1%

-2%

Health Information Solutions Segment

% Change

% Change

Q3 2014

YTD 2014

Q3 2013

YTD 2013

Q3 14 v. Q3 13

YTD 14 v. YTD 13

Condition and case management

$                    48,356

$                  145,215

$                    55,992

$                  161,475

-14%

-10%

Wellness

21,546

70,030

22,223

75,753

-3%

-8%

Women's & children's health

23,769

70,308

28,431

86,767

-16%

-19%

Patient self-testing services

30,185

86,799

27,025

77,437

12%

12%

Health information solutions net revenue

$                  123,856

$                  372,352

$                  133,671

$                  401,432

-7%

-7%

⁽¹⁾Revenues are presented in accordance with generally accepted accounting principles and exclude an adjustment of $0.3 million and $1.1 million, and $0.5 million and $1.8 million related to acquired software license contracts which were not recognized during the three and nine months ended September 30, 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 September 30, 2014

Operating Segment

Professional Diagnostics

Health Information Solutions

Consumer Diagnostics

Corporate

Total

Net revenue 

$          585,941

$          123,856

$             26,449

$                      -

$          736,246

Adjustment related to acquired software license contracts⁽¹⁾

324

-

-

-

324

Non-GAAP adjusted net revenue

$          586,265

$          123,856

$             26,449

$                      -

$          736,570

Operating income (loss) 

$             56,499

$               9,824

$               3,743

$          (32,454)

$             37,612

Adjustment related to acquired software license contracts⁽¹⁾

324

-

-

-

324

Amortization of acquisition-related intangible assets

56,063

8,282

175

1,333

65,853

Restructuring charges 

14,124

424

-

3,178

17,726

Stock-based compensation expense

-

-

-

3,167

3,167

Compensation charges associated with acquisition-related contingent consideration obligations

670

-

-

-

670

Acquisition-related costs

-

-

-

325

325

Fair value adjustments to acquisition-related contingent consideration

(4,237)

(4,400)

-

3,100

(5,537)

Costs associated with potential business dispositions

5,885

318

-

-

6,203

Loss on disposition

-

-

-

-

-

Non-GAAP adjusted operating income (loss)

$          129,328

$             14,448

$               3,918

$          (21,351)

$          126,343

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

22.1%

11.7%

14.8%

17.2%

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

For the Three Months Ended September 30, 2013

Operating Segment

Professional Diagnostics

Health Information Solutions

Consumer Diagnostics

Corporate

Total

Net revenue 

$          590,801

$          133,671

$             28,848

$                      -

$          753,320

Adjustment related to acquired software license contracts⁽¹⁾

535

-

-

-

535

Non-GAAP adjusted net revenue

$          591,336

$          133,671

$             28,848

$                      -

$          753,855

Operating income (loss) 

$             53,189

$             (1,918)

$               3,347

$          (29,034)

$             25,584

Adjustment related to acquired software license contracts⁽¹⁾

535

-

-

-

535

Amortization of acquisition-related intangible assets

69,556

11,948

459

-

81,963

Non-cash charge associated with acquired inventory

708

-

-

-

708

Restructuring charges 

6,033

1,661

-

-

7,694

Stock-based compensation expense

-

-

-

5,662

5,662

Compensation charges associated with acquisition-related contingent consideration obligations

762

-

-

-

762

Acquisition-related costs

-

-

-

450

450

Fair value adjustments to acquisition-related contingent consideration

1,516

(97)

-

400

1,819

Costs associated with proxy contest

-

-

-

5,467

5,467

Loss on disposition

5,885

-

-

-

5,885

Non-GAAP adjusted operating income (loss)

$          138,184

$             11,594

$               3,806

$          (17,055)

$          136,529

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

23.4%

8.7%

13.2%

18.1%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the third 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 Nine Months Ended September 30, 2014

Operating Segment

Professional Diagnostics

Health Information Solutions

Consumer Diagnostics

Corporate

Total

Net revenue 

$         1,735,856

$             372,352

$               81,616

$                         -

$         2,189,824

Adjustment related to acquired software license contracts⁽¹⁾

1,116

-

-

-

1,116

Non-GAAP adjusted net revenue

$         1,736,972

$             372,352

$               81,616

$                         -

$         2,190,940

Operating income (loss) 

$             119,341

$                  6,813

$               10,618

$             (74,023)

$               62,749

Adjustment related to acquired software license contracts⁽¹⁾

1,116

-

-

-

1,116

Amortization of acquisition-related intangible assets

170,687

25,068

638

1,333

197,726

Restructuring charges 

29,571

3,872

-

7,328

40,771

Stock-based compensation expense

-

-

-

7,751

7,751

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

16,803

(3,161)

-

3,400

17,042

Costs associated with potential business dispositions

20,445

318

-

-

20,763

Loss on disposition

638

-

-

-

638

Non-GAAP adjusted operating income (loss)

$             360,274

$               32,910

$               11,256

$             (53,516)

$             350,924

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

20.7%

8.8%

13.8%

16.0%

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

For the Nine Months Ended September 30, 2013

Operating Segment

Professional Diagnostics

Health Information Solutions

Consumer Diagnostics

Corporate

Total

Net revenue

$         1,777,055

$             401,432

$               76,846

$                         -

$         2,255,333

Adjustment related to acquired software license contracts⁽¹⁾

1,770

-

-

-

1,770

Non-GAAP adjusted net revenue

$         1,778,825

$             401,432

$               76,846

$                         -

$         2,257,103

Operating income (loss) 

$             185,925

$             (18,832)

$                  9,031

$             (66,909)

$             109,215

Adjustment related to acquired software license contracts⁽¹⁾

1,770

-

-

-

1,770

Amortization of acquisition-related intangible assets

201,817

33,148

1,453

-

236,418

Restructuring charges 

9,162

10,468

-

-

19,630

Stock-based compensation expense

-

-

-

14,462

14,462

Compensation charges associated with acquisition-related contingent consideration obligations

2,032

-

-

-

2,032

Non-cash charge associated with acquired inventory

1,880

-

-

-

1,880

Acquisition-related costs

-

-

-

1,772

1,772

Fair value adjustments to acquisition-related contingent consideration

12,909

2,486

-

900

16,295

Costs associated with proxy contest

-

-

-

5,467

5,467

Loss on disposition

5,885

-

-

-

5,885

Non-GAAP adjusted operating income (loss)

$             421,380

$               27,270

$               10,484

$             (44,308)

$             414,826

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

23.7%

6.8%

13.6%

18.4%

(1) Estimated revenue related to acquired software license contracts that was not recognized during the nine months 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

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)

Three Months Ended September 30, 2014

Three Months Ended September 30, 2013

Net revenue 

$                           736,246

$                           753,320

Adjustment related to acquired software license contracts 

324

535

Non-GAAP adjusted net revenue

$                           736,570

$                           753,855

Cost of net revenue

$                           393,387

$                           384,003

Less adjustments:

Amortization of acquisition-related intangible assets

(15,973)

(17,979)

Restructuring charges 

(5,654)

(3,556)

Stock-based compensation expense

(291)

(287)

Non-cash charge associated with acquired inventory

-

(708)

Non-GAAP adjusted cost of net revenue

$                           371,469

$                           361,473

Non-GAAP adjusted gross profit

$                           365,101

$                           392,382

Three Months Ended September 30, 2014

Three Months Ended September 30, 2013

Research and development 

$                             38,726

$                             40,498

Less adjustments:

Amortization of acquisition-related intangible assets

(1,372)

(1,231)

Restructuring charges 

(5,457)

(1,100)

Stock-based compensation expense

(279)

(1,111)

Non-GAAP adjusted research and development

$                             31,618

$                             37,056

Three Months Ended September 30, 2014

Three Months Ended September 30, 2013

Selling, general and administrative

$                           266,521

$                           297,350

Less adjustments:

Amortization of acquisition-related intangible assets

(48,508)

(62,753)

Restructuring charges 

(6,615)

(3,038)

Stock-based compensation expense

(2,597)

(4,264)

Compensation charges associated with acquisition-related contingent consideration obligations