Edgar Filing: ALERE INC.

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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

For the transition period from to

COMMISSION FILE NUMBER 001-16789

LOGO

ALERE INC.

(Exact name of registrant as specified in its charter)

DELAWARE

04-3565120

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices) (Zip code)

(781) 647-3900

(Registrant’s telephone number, including area code)

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

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

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

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

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of November 5, 2012 was 80,858,705.

ALERE INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended September 30, 2012

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. A number of important factors could cause actual results of Alere Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2011 and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review these risk factors, and should not place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Alere Inc. and its subsidiaries.

TABLE OF CONTENTS


		PAGE
PART I. FINANCIAL INFORMATION			3
Item 1.	Financial Statements		3
	a) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011		3
	b) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011		4
	c) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011		5
	d) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011		6
	e) Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		52
Item 4.	Controls and Procedures		54
PART II. OTHER INFORMATION			54
Item 1.	Legal Proceedings		54
Item 1A.	Risk Factors		54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55
Item 6.	Exhibits		55
SIGNATURE			56

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net product sales	$	459,813		$	418,254		$	1,399,025		$	1,224,302
Services revenue		226,415			162,266			652,704			493,393

Net product sales and services revenue		686,228			580,520			2,051,729			1,717,695
License and royalty revenue		5,188			5,249			11,333			17,723

Net revenue		691,416			585,769			2,063,062			1,735,418

Cost of net product sales		223,612			193,899			671,664			573,919
Cost of services revenue		120,131			84,177			331,550			251,388

Cost of net product sales and services revenue		343,743			278,076			1,003,214			825,307
Cost of license and royalty revenue		1,898			1,731			5,394			5,214

Cost of net revenue		345,641			279,807			1,008,608			830,521

Gross profit		345,775			305,962			1,054,454			904,897
Operating expenses:
Research and development		40,562			34,772			120,009			112,662
Sales and marketing		160,644			134,376			478,544			407,973
General and administrative		105,837			91,895			347,757			292,284

Total operating expenses		307,043			261,043			946,310			812,919

Operating income		38,732			44,919			108,144			91,978
Interest expense, including amortization of original issue discounts and deferred financing costs		(54,861	)		(47,327	)		(161,119	)		(154,194	)
Other income (expense), net		(1,072	)		(8,250	)		14,570			(5,477	)
Gain on sale of joint venture		—			288,896			—			288,896

Income (loss) before provision (benefit) for income taxes		(17,201	)		278,238			(38,405	)		221,203
Provision (benefit) for income taxes		(10,677	)		42,652			(12,621	)		(4,414	)

Income (loss) before equity earnings of unconsolidated entities, net of tax		(6,524	)		235,586			(25,784	)		225,617
Equity earnings of unconsolidated entities, net of tax		3,007			4,118			10,417			4,922

Net income (loss)		(3,517	)		239,704			(15,367	)		230,539
Less: Net income attributable to non-controlling interests		286			138			137			160

Net income (loss) attributable to Alere Inc. and Subsidiaries		(3,803	)		239,566			(15,504	)		230,379
Preferred stock dividends		(5,352	)		(5,358	)		(15,940	)		(16,682	)
Preferred stock repurchase		—			—			—			23,936

Net income (loss) available to common stockholders	$	(9,155	)	$	234,208		$	(31,444	)	$	237,633

Basic net income (loss) per common share	$	(0.11	)	$	2.84		$	(0.39	)	$	2.81

Diluted net income (loss) per common share	$	(0.11	)	$	2.48		$	(0.39	)	$	2.56

Weighted average shares — basic		80,792			82,486			80,492			84,508

Weighted average shares — diluted		80,792			97,090			80,492			100,058

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

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income (loss)	$	(3,517	)	$	239,704		$	(15,367	)	$	230,539

Other comprehensive income (loss), before tax:
Changes in cumulative translation adjustment		39,695			(56,737	)		38,857			(18,116	)
Unrealized gains (losses) on available for sale securities		141			(625	)		931			(944	)
Unrealized gains (losses) on hedging instruments		10			(87	)		465			11,901
Minimum pension liability adjustment		(98	)		246			(218	)		326

Other comprehensive income (loss), before tax		39,748			(57,203	)		40,035			(6,833	)
Income tax provision (benefit) related to items of other comprehensive income (loss)		360			(179	)		360			4,433

Other comprehensive income (loss), net of tax		39,388			(57,024	)		39,675			(11,266	)

Comprehensive income		35,871			182,680			24,308			219,273
Less: Comprehensive income attributable to non-controlling interests		286			138			137			160

Comprehensive income attributable to Alere Inc. and Subsidiaries	$	35,585		$	182,542		$	24,171		$	219,113

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

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)


	September 30, 2012			December 31, 2011

ASSETS
Current assets:
Cash and cash equivalents	$	302,254		$	299,173
Restricted cash		3,216			8,987
Marketable securities		897			1,086
Accounts receivable, net of allowances of $34,764 and $24,577 at September 30, 2012 and December 31, 2011, respectively		508,591			475,824
Inventories, net		332,512			320,269
Deferred tax assets		10,193			42,975
Receivable from joint venture, net		4,017			2,503
Prepaid expenses and other current assets		139,039			142,910

Total current assets		1,300,719			1,293,727
Property, plant and equipment, net		516,814			491,205
Goodwill		3,032,089			2,821,271
Other intangible assets with indefinite lives		57,481			69,546
Finite-lived intangible assets, net		1,885,236			1,785,925
Deferred financing costs, net, and other non-current assets		97,031			97,786
Receivable from joint venture, net of current portion		14,533			15,455
Investments in unconsolidated entities		94,021			85,138
Marketable securities		3,181			2,254
Deferred tax assets		11,576			10,394

Total assets	$	7,012,681		$	6,672,701

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	52,486		$	61,092
Current portion of capital lease obligations		6,374			6,083
Short-term debt		—			6,240
Accounts payable		163,168			155,464
Accrued expenses and other current liabilities		425,554			395,573

Total current liabilities		647,582			624,452

Long-term liabilities:
Long-term debt, net of current portion		3,527,579			3,267,451
Capital lease obligations, net of current portion		13,711			12,629
Deferred tax liabilities		413,808			380,700
Other long-term liabilities		178,406			153,398

Total long-term liabilities		4,133,504			3,814,178

Commitments and contingencies (Note 15)
Redeemable non-controlling interest		—			2,497

Stockholders’ equity:
Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at September 30, 2012 and December 31, 2011); Authorized: 2,300 shares; Issued: 2,065 shares at September 30, 2012 and December 31, 2011; Outstanding: 1,774 shares at September 30, 2012 and December 31, 2011		606,468			606,468
Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 88,533 shares at September 30, 2012 and 87,647 shares at December 31, 2011; Outstanding: 80,854 shares at September 30, 2012 and 79,968 shares at December 31, 2011		89			88
Additional paid-in capital		3,300,595			3,324,710
Accumulated deficit		(1,502,295	)		(1,486,791	)
Treasury stock, at cost, 7,679 shares at September 30, 2012 and December 31, 2011		(184,971	)		(184,971	)
Accumulated other comprehensive income (loss)		9,405			(30,270	)

Total stockholders’ equity		2,229,291			2,229,234
Non-controlling interests		2,304			2,340

Total equity		2,231,595			2,231,574

Total liabilities and equity	$	7,012,681		$	6,672,701

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

ALERE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2012			2011
Cash Flows from Operating Activities:
Net income (loss)	$	(15,367	)	$	230,539
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash interest expense, including amortization of original issue discounts and deferred financing costs		16,087			32,726
Depreciation and amortization		322,371			287,033
Non-cash charges for sale of inventories revalued at the date of acquisition		4,681			—
Non-cash stock-based compensation expense		11,868			16,275
Impairment of inventory		295			445
Impairment of long-lived assets		274			1,674
Impairment of intangible assets		—			2,938
Gain on sale of joint venture business		—			(288,896	)
(Gain) loss on sale of property, plant and equipment		(4,194	)		1,096
Gain on sales of marketable securities		—			(376	)
Equity earnings of unconsolidated entities, net of tax		(10,417	)		(4,922	)
Deferred income taxes		(43,619	)		(30,999	)
Other non-cash items		5,736			(8,115	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net		(8,261	)		(30,832	)
Inventories, net		(15,596	)		(17,013	)
Prepaid expenses and other current assets		4,171			(17,364	)
Accounts payable		(16,743	)		11,977
Accrued expenses and other current liabilities		24,116			66,769
Other non-current liabilities		(21,639	)		(30,448	)

Net cash provided by operating activities		253,763			222,507

Cash Flows from Investing Activities:
(Increase) decrease in restricted cash		5,771			(346,970	)
Purchases of property, plant and equipment		(97,309	)		(94,692	)
Proceeds from sale of property, plant and equipment		22,383			846
Proceeds from disposition of business		—			11,491
Cash paid for acquisitions, net of cash acquired		(384,780	)		(127,081	)
Cash received from sales of marketable securities		271			8,392
Cash received from (paid for) equity method investments		6,556			(44,102	)
Increase in other assets		(9,313	)		(55,888	)

Net cash used in investing activities		(456,421	)		(648,004	)

Cash Flows from Financing Activities:
Cash paid for financing costs		(2,313	)		(66,338	)
Cash paid for contingent purchase price consideration		(16,248	)		(25,305	)
Proceeds from issuance of common stock, net of issuance costs		14,260			24,159
Repurchase of preferred stock		—			(99,068	)
Proceeds from issuance of long-term debt		198,288			1,752,708
Payments on long-term debt		(42,553	)		(1,195,337	)
Net proceeds under revolving credit facilities		91,162			104,808
Payments on short-term debt		(6,240	)		—
Repurchase of common stock		—			(184,867	)
Cash paid for dividends		(15,970	)		(68	)
Excess tax benefits on exercised stock options		277			2,183
Principal payments on capital lease obligations		(4,925	)		(3,084	)
Other		(2,811	)		(10,383	)

Net cash provided by financing activities		212,927			299,408

Foreign exchange effect on cash and cash equivalents		(7,188	)		1,537

Net increase (decrease) in cash and cash equivalents		3,081			(124,552	)
Cash and cash equivalents, beginning of period		299,173			401,306

Cash and cash equivalents, end of period	$	302,254		$	276,754

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

ALERE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation of Financial Information

The accompanying consolidated financial statements of Alere Inc. are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair statement. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows. Our audited consolidated financial statements for the year ended December 31, 2011 included information and footnotes necessary for such presentation and were included in our Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2011.

Certain reclassifications of prior period amounts have been made to conform to current period presentation. These reclassifications had no effect on net income or equity.

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

(2) Cash and Cash Equivalents

We consider all highly-liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At September 30, 2012, our cash equivalents consisted of money market funds.

(3) Inventories

Inventories are stated at the lower of cost (first in, first out) or market and are comprised of the following (in thousands):


	September 30, 2012		December 31, 2011
Raw materials	$	98,009	$	92,844
Work-in-process		77,219		72,939
Finished goods		157,284		154,486

	$	332,512	$	320,269

(4) Stock-based Compensation

We recorded stock-based compensation expense in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, respectively, as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Cost of net revenue	$	269		$	408		$	801		$	1,124
Research and development		752			881			2,379			3,017
Sales and marketing		751			1,016			2,581			3,184
General and administrative		1,854			1,981			6,107			8,950

		3,626			4,286			11,868			16,275
Benefit for income taxes		(536	)		(674	)		(1,951	)		(3,264	)

	$	3,090		$	3,612		$	9,917		$	13,011

(5) Net Income (Loss) per Common Share

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerator:
Net income (loss)	$	(3,517	)	$	239,704		$	(15,367	)	$	230,539
Preferred stock dividends		(5,352	)		(5,358	)		(15,940	)		(16,682	)
Preferred stock repurchase		—			—			—			23,936
Less: Net income attributable to non-controlling interest		286			138			137			160

Net income (loss) available to common stockholders	$	(9,155	)	$	234,208		$	(31,444	)	$	237,633


Denominator:
Weighted-average common shares outstanding — basic		80,792			82,486			80,492			84,508
Effect of dilutive securities:
Stock options		—			661			—			1,078
Warrants		—			95			—			120
Potentially issuable shares of common stock associated with deferred purchase price consideration		—			189			—			189
Potentially issuable shares of common stock associated Series B convertible preferred stock		—			10,221			—			10,725
Potentially issuable shares of common stock associated with convertible debt securities		—			3,438			—			3,438

Weighted-average common shares outstanding — diluted		80,792			97,090			80,492			100,058


Basic net income (loss) per common share attributable to Alere Inc. and Subsidiaries	$	(0.11	)	$	2.84		$	(0.39	)	$	2.81

Diluted net income (loss) per common share attributable to Alere Inc. and Subsidiaries	$	(0.11	)	$	2.48		$	(0.39	)	$	2.56

For the three and nine months ended September 30, 2012, anti-dilutive shares of 13.7 million and 13.8 million, respectively, were excluded from the computations of diluted net loss per common share. For the three and nine months ended September 30, 2011, there were no anti-dilutive shares excluded from the computation of diluted net income per common share.

(6) Stockholders’ Equity and Non-controlling Interests

(a) Preferred Stock

For the three and nine months ended September 30, 2012, Series B preferred stock dividends amounted to $5.4 million and $15.9 million, respectively, and for the three and nine months ended September 30, 2011, Series B preferred stock dividends amounted to $5.4 million and $16.7 million, respectively, which reduced earnings available to common stockholders for purposes of calculating net income (loss) per common share for each of the respective periods. As of September 30, 2012, $5.3 million of Series B preferred stock dividends was accrued. As of October 15, 2012, payments have been made covering all dividend periods through September 30, 2012.

The Series B preferred stock dividends for the three and nine months ended September 30, 2012 were paid in cash. The Series B preferred stock dividends for the six months ended June 30, 2011 were paid in additional shares of Series B preferred stock. The Series B preferred stock dividends for the three months ended September 30, 2011 were paid in cash.

(b) Share Repurchases

During the first quarter of 2011, we repurchased in the open market and privately-negotiated transactions 183,000 shares of our Series B preferred stock, which were convertible into approximately 1.1 million shares of our common stock, at a cost of approximately $49.4 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $269.84 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $13.7 million of income attributable to common stockholders. Also during the first quarter of 2011, and pursuant to the same repurchase program, we repurchased 16,700 shares of our common stock at a cost of approximately $0.6 million, which we paid in cash.

During the second quarter of 2011, we repurchased in the open market and privately-negotiated transactions, 174,788 shares of our Series B preferred stock, which were convertible into approximately 1.0 million shares of our common stock, at a cost of approximately $49.7 million, which we paid in cash. Also during the second quarter of 2011 and pursuant to the same repurchase program, we repurchased 8,300 shares of our common stock at a cost of approximately $0.3 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $284.28 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $10.2 million of income attributable to common stockholders.

During the third quarter of 2011, we repurchased approximately 7.6 million shares of our common stock at a cost of approximately $183.9 million, which we paid in cash.

(c) Changes in Stockholders’ Equity and Non-controlling Interests

A summary of the changes in stockholders’ equity and non-controlling interests comprising total equity for the nine months ended September 30, 2012 and 2011 is provided below (in thousands):


	Nine Months Ended September 30,
	2012									2011
	Total Stockholders’ Equity			Non- controlling Interest			Total Equity			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
Balance, beginning of period	$	2,229,234		$	2,340		$	2,231,574		$	2,575,038		$	2,688		$	2,577,726
Issuance of common stock and warrants in connection with acquisitions		—			—			—			1,000			—			1,000
Exercise of common stock options, warrants and shares issued under employee stock purchase plan		14,261			—			14,261			24,159			—			24,159
Issuance of common stock for settlement of an acquisition-related contingent consideration obligation		1,243			—			1,243			—			—			—
Repurchase of common stock		—			—			—			(184,867	)		—			(184,867	)
Repurchase of preferred stock		—			—			—			(99,068	)		—			(99,068	)
Preferred stock dividends		(15,970	)		—			(15,970	)		(5,391	)		—			(5,391	)
Stock-based compensation related to grants of common stock options		11,868			—			11,868			16,275			—			16,275
Excess tax benefits on exercised stock options		(437	)		—			(437	)		1,452			—			1,452
Purchase of subsidiary shares from non-controlling interests		(35,079	)		—			(35,079	)		—			—			—
Dividend relating to non-controlling interest		—			(236	)		(236	)		—			(271	)		(271	)
Net income (loss)		(15,504	)		200			(15,304	)		230,379			158			230,537
Total other comprehensive income (loss)		39,675			—			39,675			(11,266	)		—			(11,266	)

Balance, end of period	$	2,229,291		$	2,304		$	2,231,595		$	2,547,711		$	2,575		$	2,550,286

The following table presents a summary of the changes in redeemable non-controlling interest recorded in the mezzanine section of the balance sheet for the nine months ended September 30, 2012 and 2011 (in thousands):


	Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Redeemable non-controlling interest, beginning of period	$	2,497		$	—
Acquisition of non-controlling interest		—			2,500
Purchase of subsidiary shares from non-controlling interest		(2,433	)		—
Net income (loss)		(64	)		2

Redeemable non-controlling interest, end of period	$	—		$	2,502

(7) Business Combinations

Acquisitions are accounted for using the acquisition method and the acquired companies’ results have been included in the accompanying consolidated financial statements from their respective dates of acquisition. During the three and nine months ended September 30, 2012, we expensed acquisition-related costs of $0.8 million and $6.1 million, respectively, in general and administrative expense. During the three and nine months ended September 30, 2011, we expensed acquisition-related costs of $2.9 million and $6.2 million, respectively, in general and administrative expense.

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

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

(a) Acquisitions in 2012

(i) eScreen

On April 2, 2012, we acquired eScreen, Inc., or eScreen, headquartered in Overland Park, Kansas, a technology-enabled provider of employment screening solutions for hiring and maintaining healthier and more efficient workforces. The preliminary aggregate purchase price was approximately $295.0 million, which consisted of $271.4 million in cash and a contingent consideration obligation with an aggregate acquisition date fair value of $23.6 million. Included in our consolidated statements of operations for the three and nine months ended September 30, 2012 is revenue totaling approximately $40.1 million and $80.1 million, respectively, related to eScreen. The operating results of eScreen are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes.

(ii) Other acquisitions in 2012

During the nine months ended September 30, 2012, we acquired the following businesses for a preliminary aggregate purchase price of $152.2 million, which included cash payments totaling $106.3 million and contingent consideration obligations with an aggregate acquisition date fair value of $45.9 million.

•

Reatrol Comercializacao De Produtos De Saude, LDA, subsequently renamed Alere Lda, located in Vila Nova de Gaia, Portugal, a distributor of products for drugs of abuse testing (Acquired January 2012)

•

Kullgren Holding AB, or Kullgren, located in Gensta, Sweden, a company that manufactures and distributes high quality intimacy and pharmaceutical products (Acquired February 2012)

•

Wellogic ME FZ-LLC, or Wellogic UAE, located in Dubai, United Arab Emirates, a company that provides development services to Alere Wellogic, LLC, which acquired the assets of Method Factory, Inc. (d/b/a Wellogic), or Wellogic, in December 2011 (Acquired February 2012)

•

certain assets, primarily including customer and patient lists, of AmMed Direct LLC, or AmMed, located near Nashville, Tennessee, a privately-owned mail-order provider of home-diabetes testing products and supplies (Acquired March 2012)

•

MedApps Holding Company, Inc., or MedApps, headquartered in Scottsdale, Arizona, a developer of innovative remote health monitoring solutions that deliver efficient cost-effective connectivity between patient, care provider and electronic medical records (Acquired July 2012)

•

Amedica Biotech, Inc., or Amedica, located in Hayward, California, a company focused on the development and manufacture of in vitro diagnostic tests (Acquired July 2012)

•

DiagnosisOne, Inc., or DiagnosisOne, located in Lowell, Massachusetts, a software company that provides clinical analytics technology and data-driven content to hospitals, physician groups, insurers and governments (Acquired July 2012)

•

Seelen Care Laege- og & Hospitalsartikler ApS, or Seelen, located in Holstebro, Denmark, a distributor of consumables, instruments and equipment to doctors, specialists and physiotherapists (Acquired August 2012)

•

certain assets of Diagnostik Nord, or Diagnostik, located in Schwerin, Germany, a company focused on the sale of drug screening and in vitro diagnostic medical devices and a provider of diagnostic solutions (Acquired September 2012)

The operating results of Alere Lda, AmMed, MedApps, Amedica, Seelen and Diagnostik are included in our professional diagnostics reporting unit and business segment. The operating results of Wellogic UAE and DiagnosisOne are included in our health management reporting unit and business segment. The operating results of Kullgren are included in our consumer diagnostics reporting unit and business segment.

Our consolidated statements of operations for the three and nine months ended September 30, 2012 included revenue totaling approximately $14.4 million and $26.3 million, respectively, related to these businesses. Goodwill has been recognized in all of these acquisitions and amounted to approximately $83.7 million. Goodwill related to the acquisitions of AmMed and Diagnostik, which totaled $8.2 million, is deductible for tax purposes. The goodwill related to the remaining 2012 acquisitions is not deductible for tax purposes.

A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated during the nine months ended September 30, 2012 is as follows (in thousands):


	eScreen		Other		Total
Current assets ⁽¹⁾	$	32,743	$	7,210	$	39,953
Property, plant and equipment		5,664		2,295		7,959
Goodwill		154,721		83,711		238,432
Intangible assets		204,200		93,931		298,131
Other non-current assets		481		151		632

Total assets acquired		397,809		187,298		585,107

Current liabilities		22,796		3,967		26,763
Non-current liabilities		80,023		31,145		111,168

Total liabilities assumed		102,819		35,112		137,931

Net assets acquired		294,990		152,186		447,176
Less:
Contingent consideration		23,600		45,860		69,460

Cash paid	$	271,390	$	106,326	$	377,716

⁽¹⁾	Includes approximately $2.8 million of acquired cash.

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


	eScreen		Other		Total		Weighted- average Useful Life
Core technology and patents	$	93,200	$	49,203	$	142,403		19.0 years
Trademarks and trade names		17,300		1,030		18,330		19.0 years
Customer relationships		79,500		39,488		118,988		19.5 years
Non-competition agreements		—		1,010		1,010		5.1 years
Other		14,200		—		14,200		10.0 years
In-process research and development		—		3,200		3,200		N/A

Total intangible assets	$	204,200	$	93,931	$	298,131

(b) Acquisitions in 2011

During 2011, we acquired the following businesses for a preliminary aggregate purchase price of $787.4 million, which included cash payments totaling $603.7 million, 831,915 shares of our common stock with an acquisition date fair value of $16.2 million, a previously-held investment with a fair value totaling $113.2 million, contingent consideration obligations with an aggregate acquisition date fair value of $48.7 million, deferred purchase price consideration with an acquisition date fair value of $4.2 million and debt forgiveness with a fair value of $1.5 million.

•

90% interest in BioNote, Inc., or BioNote, headquartered in South Korea, a manufacturer of diagnostic products for the veterinary industry (Acquired January 2011). We previously owned a 10% interest in BioNote.

•

assets, including domain name, of Pregnancy.org, LLC, or Pregnancy.org, a U.S.-based company providing a website for preconception, pregnancy and newborn care content, tools and sharing (Acquired January 2011)

•

Home Telehealth Limited, subsequently renamed Alere Connected Health Limited, or Alere Connected Health, located in Cardiff, Wales, a company that focuses on delivering integrated, comprehensive services and programs to health and social care providers and insurers (Acquired February 2011)

•

Bioeasy Diagnostica Ltda., or Bioeasy, located in Belo Horizonte, Brazil, a company that markets and sells rapid diagnostic tests and systems for laboratory diagnosis, prevention and monitoring of immunological diseases and fertility (Acquired March 2011)

•

80.92% interest in Standing Stone, Inc., or Standing Stone, located in Westport, Connecticut, a company that focuses on disease state management by enhancing the quality of care provided to patients who require long-term therapy for chronic disease management (Acquired May 2011). During May 2012, we acquired the remaining 19.08% interest in Standing Stone.

•

certain assets, rights, liabilities and properties of Drug Detection Devices, Inc., or 3DL, located in Alpharetta, Georgia, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired July 2011)

•

Colibri Medical AB, or Colibri, located in Helsingborg, Sweden, a distributor of point-of-care drugs of abuse diagnostic products primarily to the Scandinavian marketplace (Acquired July 2011)

•

Laboratory Data Systems, Inc., or LDS, located in Tampa, Florida, a provider of healthcare software products, services, consulting and solutions (Acquired August 2011)

•

certain assets, liabilities and properties of Abatek Medical LLC, or Abatek, located in Dover, New Hampshire, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired September 2011)

•

Forensics Limited, or ROAR, located in Worcestershire, United Kingdom, a company that provides forensic quality toxicology services across the United Kingdom (Acquired September 2011)

•

Mahsan Diagnostika Vertriebsgesellschaft mbH, or Mahsan, located in Reinbek, Germany, a distributor of in vitro diagnostic drugs of abuse products primarily to the German marketplace (Acquired October 2011)

•

Avee Laboratories Inc. and related companies, which we refer to collectively as Avee, located in Tampa, Florida, a privately-owned provider of drug testing services in the field of pain management (Acquired October 2011)

•

Medical Automation Systems Inc., or MAS, located in Charlottesville, Virginia, a provider of network-based software solutions for point-of-care testing (Acquired October 2011)

•

Axis-Shield plc, or Axis-Shield, located in Dundee, Scotland, a U.K. publicly traded company focused on the development and manufacture of in vitro diagnostic tests for use in clinical laboratories and at the point of care (Acquired November 2011)

•

certain assets and properties of 1 Medical Distribution, Inc., or 1 Medical, located in Worthington, Ohio, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired November 2011)

•

Arriva Medical LLC, or Arriva, located in Coral Springs, Florida, a privately-owned mail-order provider of home-diabetes testing products and supplies (Acquired November 2011)

•

Method Factory, Inc. (d/b/a Wellogic), or Wellogic, headquartered in Waltham, Massachusetts, a provider of software solutions designed to connect the healthcare community (Acquired December 2011)

The operating results of BioNote, Bioeasy, 3DL, Colibri, LDS, Abatek, ROAR, Mahsan, Avee, MAS, Axis-Shield, 1 Medical and Arriva are included in our professional diagnostics reporting unit and business segment. The operating results of Pregnancy.org, Alere Connected Health, Standing Stone and Wellogic are included in our health management reporting unit and business segment.

Our consolidated statements of operations for the three and nine months ended September 30, 2011 included revenue totaling approximately $5.6 million and $15.3 million, respectively, related to the businesses acquired during the first nine months of 2011. Goodwill has been recognized in all of the acquisitions, with the exception of 1 Medical, and amounted to approximately $364.2

million. Goodwill related to the acquisitions of Pregnancy.org, 3DL, Abatek, LDS and Wellogic, which totaled $32.3 million, is expected to be deductible for tax purposes. The goodwill related to the remaining 2011 acquisitions is not expected to be deductible for tax purposes.

A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated in 2011 is as follows (in thousands):


Current assets ⁽¹⁾	$	132,360
Property, plant and equipment		68,474
Goodwill		364,213
Intangible assets		416,624
Other non-current assets		27,679

Total assets acquired		1,009,350

Current liabilities		90,301
Non-current liabilities		129,132

Total liabilities assumed		219,433

Less:
Fair value of non-controlling interest		2,500

Net assets acquired		787,417
Less:
Fair value of previously-held equity investment		113,168
Contingent consideration		48,685
Fair value of common stock issued		16,183
Loan forgiveness		1,489
Deferred purchase price consideration		4,170

Cash paid	$	603,722

⁽¹⁾	Includes approximately $23.2 million of acquired cash.

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


	Amount		Weighted- Average Useful Life
Core technology and patents	$	76,659		10.1 years
Database		64		3.0 years
Trademarks and trade names		14,197		10.1 years
Customer relationships		243,725		12.3 years
Non-competition agreements		8,306		5.3 years
Software		7,400		10.9 years
Other		7,767		15.6 years
In-process research and development		58,506		N/A

Total intangible assets	$	416,624

(c) Restructuring Plans of Acquisitions

In connection with several of our acquisitions consummated during 2008 and prior, we initiated integration plans to consolidate and restructure certain functions and operations, including the costs associated with the termination of certain personnel of these acquired entities and the closure of certain of the acquired entities’ leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of these entities and are subject to potential adjustments as certain exit activities are refined. The following table summarizes the liabilities established for exit activities related to these acquisitions and the total exit costs incurred since inception of each plan (in thousands):


	Balance at December 31, 2011		Adjustments to the Reserve ⁽¹⁾			Amounts Paid			Balance at September 30, 2012		Exit Costs Since Inception
Acquisition of Matria Healthcare, Inc.:
Severance-related costs	$	68	$	—		$	—		$	68	$	13,664
Facility costs		395		(111	)		(105	)		179		4,674

Total costs for Matria Healthcare, Inc.		463		(111	)		(105	)		247		18,338

Acquisition of Cholestech Corporation:
Severance-related costs		—		—			—			—		5,845
Facility costs		1,304		—			(180	)		1,124		2,732

Total costs for Cholestech Corporation		1,304		—			(180	)		1,124		8,577

Total costs for all plans	$	1,767	$	(111	)	$	(285	)	$	1,371	$	26,915

⁽¹⁾	These adjustments resulted in a change in the aggregate purchase price and related goodwill for each related acquisition.

Of the total $1.4 million liability outstanding as of September 30, 2012, $0.5 million is included in accrued expenses and other current liabilities and $0.9 million is included in other long-term liabilities.

Although we believe our plans and estimated exit costs for our acquisitions are reasonable, actual spending for exit activities may differ from current estimated exit costs.

(8) Restructuring Plans

The following table sets forth aggregate restructuring charges recorded in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
Statement of Operations Caption	2012		2011			2012		2011
Cost of net revenue	$	1,080	$	80		$	2,069	$	2,310
Research and development		—		(1	)		638		433
Sales and marketing		927		935			1,954		3,809
General and administrative		1,232		2,115			5,471		13,074

Total operating expenses		3,239		3,129			10,132		19,626
Interest expense, including amortization of original issue discounts and deferred financing costs		48		84			158		206
Equity earnings of unconsolidated entities, net of tax		—		199			—		534

Total charges	$	3,287	$	3,412		$	10,290	$	20,366

(a) 2012 Restructuring Plans

In 2012, management developed cost reduction efforts within our professional diagnostics business segment, including the integration of our businesses in Brazil. Additionally, management developed new plans to continue our efforts to reduce costs within our health management business segment, including vacating facility space. The following table summarizes the restructuring activities related to our 2012 restructuring plans for the three and nine months ended September 30, 2012 (in thousands):


	Three Months Ended September 30, 2012
	Professional Diagnostics		Health Management		Total
Severance-related costs	$	691	$	516	$	1,207
Facility and transition costs		—		465		465
Other exit costs		—		5		5

Cash charges		691		986		1,677
Other non-cash charges		55		—		55

Total charges	$	746	$	986	$	1,732


	Nine Months Ended September 30, 2012
	Professional Diagnostics		Health Management		Total
Severance-related costs	$	3,009	$	1,735	$	4,744
Facility and transition costs		—		590		590
Other exit costs		—		5		5

Cash charges		3,009		2,330		5,339
Other non-cash charges		55		—		55

Total charges	$	3,064	$	2,330	$	5,394

We anticipate incurring approximately $0.3 million in additional severance-related costs under these plans related to our professional diagnostics business segment, $1.0 million in additional facility costs under our health management business segment through 2014 and may develop additional plans over the remainder of 2012. As of September 30, 2012, $1.7 million in severance and exit costs remain unpaid.

(b) 2011 Restructuring Plans

In 2011, management executed a company-wide cost reduction plan, which impacted our corporate and other business segment, as well as our health management and professional diagnostics business segments. Management also developed plans within our professional diagnostics business segment to consolidate operating activities among certain of our European and Asia Pacific subsidiaries, including transferring the manufacturing of our Panbio products from Australia to our Standard Diagnostics facility in South Korea. Additionally, within our health management business segment, management executed plans to further reduce costs and improve efficiencies, as well as cease operations at our GeneCare Medical Genetics Center, Inc., facility in Chapel Hill, North Carolina, and transfer the majority of our Quality Assured Services, Inc. operation in Orlando, Florida to our facility in Livermore, California. The following table summarizes the restructuring activities related to our 2011 restructuring plans for the three and nine months ended September 30, 2012 and 2011 and since inception (in thousands):

Professional Diagnostics


	Three Months Ended September 30,				Nine Months Ended September 30,				Since Inception
	2012		2011		2012		2011		Since Inception
Severance-related costs	$	639	$	2,120	$	2,914	$	5,721	$	14,961
Facility and transition costs		387		208		1,121		208		1,482

Cash charges		1,026		2,328		4,035		5,929		16,443
Fixed asset and inventory impairments		290		43		424		659		1,083

Total charges	$	1,316	$	2,371	$	4,459	$	6,588	$	17,526

Health Management


	Three Months Ended September 30,				Nine Months Ended September 30,				Since Inception
	2012		2011		2012		2011		Since Inception
Severance-related costs	$	—	$	82	$	—	$	2,274	$	2,254
Facility and transition costs		114		388		25		4,195		6,366
Other exit costs		16		58		60		58		154

Cash charges		130		528		85		6,527		8,774
Fixed asset and inventory impairments		—		60		85		864		949
Intangible asset impairments		—		—		—		2,935		2,935
Other non-cash charges		—		—		—		812		761

Total charges	$	130	$	588	$	170	$	11,138	$	13,419

Corporate and Other


	Three Months Ended September 30,				Nine Months Ended September 30,				Since Inception
	2012		2011		2012		2011		Since Inception
Severance-related costs	$	5	$	69	$	31	$	1,117	$	1,224

Cash charges		5		69		31		1,117		1,224
Fixed asset and inventory impairments		—		—		—		2		3

Total charges	$	5	$	69	$	31	$	1,119	$	1,227

We anticipate incurring approximately $2.5 million in additional costs under these plans related to our professional diagnostics business segment, primarily related to severance and facility exit costs, and may also incur impairment charges on assets as plans are finalized. We anticipate incurring approximately $0.9 million in additional costs under these plans related to our health management business segment, primarily related to facility lease obligations through 2014. As of September 30, 2012, $2.9 million in cash charges remain unpaid.

In 2010, management developed several plans to reduce costs and improve efficiencies within our health management and professional diagnostics business segments. In May 2008, management decided to close our facility located in Bedford, England and initiated steps to cease operations at this facility and transition the manufacturing operations principally to our manufacturing facilities in Shanghai and Hangzhou, China. Additionally in 2008, management developed and initiated plans to transition the businesses of Cholestech to our San Diego, California facility. The following table summarizes the restructuring activities related to these restructuring plans for the three and nine months ended September 30, 2012 and 2011 and since inception (in thousands):

Professional Diagnostics


	Three Months Ended September 30,					Nine Months Ended September 30,					Since Inception
	2012		2011			2012		2011			Since Inception
Severance-related costs	$	—	$	(107	)	$	—	$	(29	)	$	8,897
Facility and transition costs		77		266			227		828			8,539
Other exit costs		16		22			52		68			4,470

Cash charges		93		181			279		867			21,906
Fixed asset and inventory impairments		—		—			—		—			10,309

Total charges	$	93	$	181		$	279	$	867		$	32,215

Health Management


	Three Months Ended September 30,				Nine Months Ended September 30,					Since Inception
	2012		2011		2012			2011		Since Inception
Severance-related costs	$	—	$	—	$	—		$	—	$	4,647
Facility and transition costs		—		—		(84	)		40		2,392
Other exit costs		11		4		41			80		329

Cash charges		11		4		(43	)		120		7,368
Fixed asset and inventory impairments		—		—		—			—		165

Total charges	$	11	$	4	$	(43	)	$	120	$	7,533

We anticipate incurring an additional $0.5 million in facility lease obligation charges related to the Cholestech plan through 2017 and do not anticipate incurring significant additional charges under the other plans. As of September 30, 2012, $1.1 million in facility related costs remain unpaid.

In addition to the restructuring charges discussed above, certain charges associated with the Bedford facility closure were borne by SPD, our 50/50 joint venture with the Procter & Gamble Company, or P&G. Of the restructuring charges recorded by SPD, 50% has been included in equity earnings of unconsolidated entities, net of tax, in our consolidated statement of operations. The following table summarizes the 50% portion of the restructuring charges borne by SPD and included in equity earnings of unconsolidated entities, net of tax, for the three and nine months ended September 30, 2011 and since inception (in thousands):


	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011		Since Inception
Severance-related costs	$	—	$	30	$	5,797
Facility and transition costs		199		432		5,396
Other exit costs		—		—		283

Cash charges		199		462		11,476
Fixed asset and inventory impairments		—		72		4,635

Total charges included in equity earnings of unconsolidated entities, net of tax	$	199	$	534	$	16,111

We do not anticipate incurring significant additional restructuring charges under this plan.

(d) Restructuring Reserves

The following table summarizes our restructuring reserves related to the plans described above, of which $4.4 million is included in accrued expenses and other current liabilities and $1.3 million is included in other long-term liabilities on our consolidated balance sheets (in thousands):


	Severance- related Costs			Facility and Transition Costs			Other Exit Costs			Total
Balance, December 31, 2011	$	3,380		$	5,215		$	593		$	9,188
Cash charges		7,690			1,879			157			9,726
Payments		(8,891	)		(4,083	)		(170	)		(13,144	)
Currency adjustments		(47	)		2			—			(45	)

Balance, September 30, 2012	$	2,132		$	3,013		$	580		$	5,725

(9) Long-term Debt

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


	September 30, 2012			December 31, 2011
A term loans ⁽¹⁾	$	893,750		$	917,188
B term loans		915,750			922,688
Incremental B-1 term loans		248,125			250,000
Incremental B-2 term loans		197,163			—
Secured credit facility revolving line of credit		97,500			—
3% Senior subordinated convertible notes		150,000			150,000
9% Senior subordinated notes		392,493			391,233
7.875% Senior notes		246,319			245,621
8.625% Senior subordinated notes		400,000			400,000
Other lines of credit		11,251			19,603
Other		27,714			32,210

		3,580,065			3,328,543
Less: Current portion		(52,486	)		(61,092	)

	$	3,527,579		$	3,267,451

⁽¹⁾	Includes “A” term loans and “Delayed-Draw” term loans under our secured credit facility.

In connection with our significant long-term debt issuances, we recorded interest expense, including amortization and write-offs of deferred financing costs and original issue discounts, in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, respectively, as follows (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
Secured credit facility⁽¹⁾	$	27,474	$	21,160		$	77,422	$	21,380
Former secured credit facility⁽²⁾		—		(279	)		—		53,978	⁽³⁾
3% Senior subordinated convertible notes		1,246		1,246			3,738		3,742
9% Senior subordinated notes		10,373		9,751			31,090		29,219
7.875% Senior notes		5,763		5,378			17,276		16,112
8.625% Senior subordinated notes		9,274		8,909			27,823		26,736

	$	54,130	$	46,165		$	157,349	$	151,167

⁽¹⁾

Includes “A” term loans, including the “Delayed-Draw” term loans; “B” term loans; “Incremental B-1” term loans; “Incremental B-2” term loans; and revolving line-of-credit loans. For the three and nine months ended September 30, 2012, the amount includes $1.3 million and $4.0 million, respectively, related to the amortization of fees paid for certain debt modifications.

⁽²⁾	Includes loans under First Lien Credit Agreement and Second Lien Credit Agreement.

⁽³⁾	Amount includes approximately $29.7 million recorded in connection with the termination of our former secured credit facility and related interest rate swap agreement, coupled with the amortization of fees paid for certain debt modifications.

The following summarizes the material terms of our secured credit facility that have changed significantly since December 31, 2011. All other terms of our secured credit facility as described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, but omitted below, have not changed since that date.

On March 28, 2012, we and certain of our subsidiaries entered into a third amendment to the credit agreement that governs our secured credit facility, or the credit agreement. The third amendment provides for an additional term loan facility consisting of “Incremental B-2” term loans in the aggregate principal amount of $200.0 million and thereby increases the total amount of the credit available to us under the secured credit facility to $2.55 billion in aggregate principal amount, consisting of term loans in the aggregate principal amount of $2.3 billion and, subject to our continued compliance with the credit agreement, a $250.0 million revolving line of credit; the revolving line of credit continues to include a sublimit for the issuance of letters of credit. On March 28, 2012, we borrowed the entire $200.0 million principal amount of the “Incremental B-2” term loans.

Under the terms of the third amendment, we must repay the principal amount of the “Incremental B-2” term loans in twenty consecutive quarterly installments, beginning on June 30, 2012 and continuing through March 31, 2017 (all previously due installments of which we have paid in full), in the amount of $0.5 million each, and a final installment on June 30, 2017 in the amount of $190.0 million; notwithstanding the foregoing, and subject to certain exceptions provided for in the credit agreement, in the event that any of our existing 3% senior subordinated convertible notes, 9% senior subordinated notes or 7.875% senior notes remain outstanding on the date that is six months prior to the relevant maturity date thereof, respectively, then the “Incremental B-2” term loans (as well as all other term loans and all revolving credit loans under the secured credit facility) shall instead mature in full on the relevant prior date. Otherwise, the terms and conditions, including the interest rates, that apply to the “Incremental B-2” term loans under the credit agreement are substantially the same as the terms and conditions, including the interest rates, that apply to the existing “B” term loans under the credit agreement.

(10) Derivative Financial Instruments

We manage our economic and transaction exposure to certain market-based risks through the use of derivative instruments. Our objective for holding derivative instruments has been to reduce volatility of net earnings and cash flows associated with changes in interest rates and foreign currency exchange rates. We do not hold or issue derivative financial instruments for speculative purposes.

(a) Interest Rate Risk

We used interest rate swap contracts in the management of our interest rate exposure related to our former secured credit facility. On June 30, 2011, we entered into a new secured credit facility and, in connection therewith, repaid in full all outstanding indebtedness under and terminated our former secured credit facility and related interest rate swaps.

(b) Foreign Currency Risk

In connection with our acquisition of Axis-Shield, we acquired a number of foreign currency forward contracts. The specific risk hedged in these contracts was the undiscounted foreign currency spot rate risk on forecasted foreign currency revenue. As of September 30, 2012, all of the acquired foreign currency forward contracts were settled. As of December 31, 2011, the notional value of these contracts was $16.6 million and CHF 5.4 million, respectively. We report the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and it is subsequently reclassified into net earnings in the period in which the hedged transaction affects net earnings or the forecasted transaction is no longer probable of occurring.

The following tables summarize the fair value of our derivative instruments and the effect of derivative instruments on/in our accompanying consolidated balance sheets and consolidated statements of operations (in thousands):


Derivative Instruments	Balance Sheet Caption	Fair Value at September 30, 2012		Fair Value at December 31, 2011
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	—	$	447


Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain Recognized During the Three Months Ended September 30, 2012		Amount of Loss Recognized During the Three Months Ended September 30, 2011
Foreign exchange forward contract	Other comprehensive income (loss)	$	10	$	(88	)

Total gain (loss)	Other comprehensive income (loss)	$	10	$	(88	)


Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain Recognized During the Nine Months Ended September 30, 2012		Amount of Gain (Loss) Recognized During the Nine Months Ended September 30, 2011
Foreign exchange forward contract	Other comprehensive income (loss)	$	465	$	(80	)
Interest rate swap contracts	Other comprehensive income (loss)		—		1,841

Total gain	Other comprehensive income (loss)	$	465	$	1,761

(11) Fair Value Measurements

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

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

Level 1 Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets and liabilities include investments in marketable securities.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets and liabilities include foreign exchange forward contracts.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of the contingent consideration obligations related to our acquisitions is valued using Level 3 inputs.

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):


Description	September 30, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Marketable securities	$	4,078	$	4,078	$	—	$	—

Total assets	$	4,078	$	4,078	$	—	$	—


Liabilities:
Contingent consideration obligations ⁽¹⁾	$	171,276	$	—	$	—	$	171,276

Total liabilities	$	171,276	$	—	$	—	$	171,276


Description	December 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Marketable securities	$	3,340	$	3,340	$	—	$	—

Total assets	$	3,340	$	3,340	$	—	$	—

Liabilities: Foreign exchange forward contracts ⁽²⁾	$	447	$	—	$	447	$	—
Contingent consideration obligations ⁽¹⁾		140,047		—		—		140,047

Total liabilities	$	140,494	$	—	$	447	$	140,047

⁽¹⁾

The fair value measurements for our contingent consideration obligations relate to acquisitions completed after January 1, 2009 and are valued using Level 3 inputs. We determine the fair value of the contingent consideration obligations based on a probability-weighted approach derived from earn-out criteria estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The measurement is based upon significant inputs not observable in the market. Significant increases or decreases in any of these inputs could result in a significantly higher or lower fair value measurement. Changes in the fair value of these contingent consideration obligations are recorded as income or expense within operating income in our consolidated statements of operations.

⁽²⁾	The fair value of the foreign exchange forward contracts was measured using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates.

Changes in the fair value of our Level 3 contingent consideration obligations during the nine months ended September 30, 2012 were as follows (in thousands):


Fair value of contingent consideration obligations, January 1, 2012	$	140,047
Acquisition date fair value of contingent consideration obligations recorded		69,461
Foreign currency		314
Payments		(21,764	)
Present value accretion		16,272
Adjustments, net (income) expense		(33,054	)

Fair value of contingent consideration obligations, September 30, 2012	$	171,276

At September 30, 2012 and December 31, 2011, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable and other current liabilities approximated their estimated fair values.

The carrying amount and estimated fair value of our long-term debt were $3.6 billion at September 30, 2012. The carrying amount and estimated fair value of our long-term debt were $3.3 billion at December 31, 2011. The estimated fair value of our long-term debt was determined using market sources that were derived from available market information (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future.

(12) Defined Benefit Pension Plan

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Service cost	$	—		$	—		$	—		$	—
Interest cost		199			203			596			610
Expected return on plan assets		(152	)		(156	)		(457	)		(468	)
Amortization of prior service costs		104			106			312			320
Realized losses		—			—			—			—

Net periodic benefit cost	$	151		$	153		$	451		$	462

(13) Financial Information by Segment

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are Professional Diagnostics, Health Management, Consumer Diagnostics and Corporate and Other. Our operating results include license and royalty revenue which are allocated to Professional Diagnostics and Consumer Diagnostics on the basis of the original license or royalty agreement.

We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):


	Professional Diagnostics		Health Management			Consumer Diagnostics			Corporate and Other			Total
Three Months Ended September 30, 2012:
Net revenue	$	531,442	$	135,078		$	24,896		$	—		$	691,416
Operating income (loss)	$	63,298	$	(14,357	)	$	4,615		$	(14,824	)	$	38,732
Depreciation and amortization	$	85,030	$	24,313		$	1,167		$	239		$	110,749
Restructuring charge	$	2,139	$	1,095		$	—		$	5		$	3,239
Stock-based compensation	$	—	$	—		$	—		$	3,626		$	3,626
Three Months Ended September 30, 2011:
Net revenue	$	429,952	$	129,931		$	25,886		$	—		$	585,769
Operating income (loss)	$	64,893	$	(12,565	)	$	3,844		$	(11,253	)	$	44,919
Depreciation and amortization	$	63,053	$	26,228		$	1,428		$	208		$	90,917
Restructuring charge	$	2,587	$	530		$	(57	)	$	69		$	3,129
Stock-based compensation	$	—	$	—		$	—		$	4,286		$	4,286
Nine Months Ended September 30, 2012:
Net revenue	$	1,589,909	$	404,452		$	68,701		$	—		$	2,063,062
Operating income (loss)	$	196,728	$	(46,379	)	$	7,679		$	(49,884	)	$	108,144
Depreciation and amortization	$	245,911	$	72,152		$	3,604		$	704		$	322,371
Non-cash charge associated with acquired inventory	$	4,681	$	—		$	—		$	—		$	4,681
Restructuring charge	$	7,750	$	2,351		$	—		$	31		$	10,132
Stock-based compensation	$	—	$	—		$	—		$	11,868		$	11,868
Nine Months Ended September 30, 2011:
Net revenue	$	1,254,838	$	408,566		$	72,014		$	—		$	1,735,418
Operating income (loss)	$	174,459	$	(39,652	)	$	9,107		$	(51,936	)	$	91,978
Depreciation and amortization	$	200,645	$	81,871		$	4,007		$	510		$	287,033
Restructuring charge	$	7,445	$	11,119		$	(57	)	$	1,119		$	19,626
Stock-based compensation	$	—	$	—		$	—		$	16,275		$	16,275
Assets:
As of September 30, 2012	$	5,819,658	$	583,832		$	188,912		$	420,279		$	7,012,681
As of December 31, 2011	$	5,826,756	$	624,305		$	199,422		$	22,218		$	6,672,701

The following tables summarize our net revenue from the professional diagnostics and health management reporting segments by groups of similar products and services for the three and nine months ended September 30, 2012 and 2011 (in thousands):

Professional Diagnostics Segment


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Cardiology	$	122,372	$	127,943	$	386,795	$	390,652
Infectious disease		136,561		142,639		425,398		405,559
Toxicology		156,074		93,497		437,736		267,834
Diabetes		35,670		—		100,628		—
Other		78,077		62,172		230,519		176,206

Net product sales and services revenue		528,754		426,251		1,581,076		1,240,251
License and royalty revenue		2,688		3,701		8,833		14,587

Professional diagnostics net revenue	$	531,442	$	429,952	$	1,589,909	$	1,254,838

Health Management Segment


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Disease and case management	$	57,383	$	59,441	$	165,277	$	182,118
Wellness		24,290		24,427		80,881		80,369
Women’s & children’s health		29,136		28,509		90,220		85,550
Patient self-testing services		24,269		17,554		68,074		60,529

Health management net revenue	$	135,078	$	129,931	$	404,452	$	408,566

(14) Related Party Transactions

In May 2007, we completed the formation of SPD, our 50/50 joint venture with P&G, for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form the joint venture, we ceased to consolidate the operating results of our consumer diagnostic products business related to the joint venture and instead account for our 50% interest in the results of the joint venture under the equity method of accounting.

We had a net receivable from the joint venture of $4.0 million and $2.5 million as of September 30, 2012 and December 31, 2011, respectively. Included in the $4.0 million receivable balance as of September 30, 2012 is approximately $1.6 million of costs incurred in connection with our 2008 SPD-related restructuring plans. Included in the $2.5 million receivable balance as of December 31, 2011 is approximately $1.5 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $14.5 million and $15.5 million as of September 30, 2012 and December 31, 2011, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the joint venture was completed have been classified as other receivables within prepaid expenses and other current assets on our accompanying consolidated balance sheets in the amount of $7.1 million and $7.3 million as of September 30, 2012 and December 31, 2011, respectively. In connection with the joint venture arrangement, the joint venture bears the collection risk associated with these receivables. Sales to the joint venture under our manufacturing agreement totaled $15.9 million and $47.4 million during the three and nine months ended September 30, 2012, respectively, and $19.4 million and $52.0 million during the three and nine months ended September 30, 2011, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $0.3 million and $0.9 million during the three and nine months ended September 30, 2012, respectively, and $0.2 million and $0.8 million during the three and nine months ended September 30, 2011, respectively. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our accompanying consolidated statements of operations.

Under the terms of our product supply agreement, the joint venture purchases products from our manufacturing facilities in the U.K. and China. The joint venture in turn sells a portion of those tests back to us for final assembly and packaging. Once packaged, the tests are sold to P&G for distribution to third-party customers in North America. As a result of these related transactions, we have recorded $7.1 million and $8.9 million of trade receivables which are included in accounts receivable on our accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively, and $13.7 million and $19.3 million of trade accounts payable which are included in accounts payable on our accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively. During the nine months ended September 30, 2012, we received $6.1 million in cash from SPD as a return of capital.

In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G had the right, for a period of 60 days commencing on May 17, 2011, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G had the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. On July 16, 2011, P&G’s option to require us to acquire its interest in SPD at fair market value expired. In connection with the expiration of the option, we recognized a gain in the amount of approximately $288.9 million during the third quarter of 2011.

(15) Material Contingencies and Legal Settlements

(a) Legal Proceedings

We are not a party to any pending legal proceedings that we currently believe could have a material adverse impact on our sales, operations or financial performance. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

(b) Acquisition-related Contingent Consideration Obligations

The following summarizes our principal contractual acquisition-related contingent consideration obligations as of September 30, 2012 that have changed significantly since December 31, 2011. Other acquisition-related contingent consideration obligations that were presented in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, but which are omitted below, represent those that have not changed significantly since that date.

•

AmMed

With respect to AmMed, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational targets within six months of the acquisition date. The maximum amount of the earn-out payment was $2.0 million. The conditions of the earn-out were not achieved and as such no further contingent consideration obligations related to this acquisition exist as of September 30, 2012.

•

Amedica

With respect to Amedica, the terms of the acquisition agreement require us to make earn-out payments upon successfully meeting certain financial targets during each of calendar years 2012 and 2013. The maximum amount of the earn-out payments are $6.9 million and $8.1 million for calendar years 2012 and 2013, respectively.

•

Capital Toxicology

The initial terms of the acquisition agreement for Capital Toxicology, LLC, provided for an earn-out calculated based on the amount, if any, by which EBITDA derived from the acquired business exceeded specified targets during each of the calendar years 2011 and 2012. A portion of the earn-out for the 2011 calendar year totaling approximately $2.1 million was earned and accrued as of December 31, 2011. During the first quarter of 2012, the acquisition agreement was modified to base the earn-out on the excess of actual cash collections from 2011 sales over 2011 expenses rather than EBITDA. This new criterion resulted in an incremental $2.9 million accrual related to the earn-out for the 2011 calendar year based on cash collections through March 31, 2012. $4.1 million was paid in respect of the earn-out for the 2011 calendar year during the second quarter of 2012. An additional payment of approximately $1.5 million will be made in the fourth quarter of 2012 for the incremental cash collections from 2011 sales received prior to August 31, 2012. The maximum potential remaining amount of the earn-out payments is approximately $8.0 million.

•

DiagnosisOne

With respect to DiagnosisOne, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within five years of the acquisition date. The maximum amount of the earn-out payments is $33.0 million.

•

Diagnostik

With respect to Diagnostik, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within two years of the acquisition date. The maximum amount of the earn-out payments is approximately €1.4 million (approximately $1.8 million at September 30, 2012).

•

eScreen

With respect to eScreen, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets during calendar years 2012 through 2014. The maximum amount of the earn-out payments is $70.0 million.

•

MedApps

With respect to MedApps, the terms of the acquisition agreement require us to make earn-out payments upon achievement of certain technological and product development milestones through January 15, 2015. The maximum amount of the earn-out payments is $22.0 million.

•

Standing Stone

With respect to Standing Stone, the terms of the acquisition agreement require us to pay earn-outs and employee bonuses upon successfully meeting certain operational, product development and revenue targets during the period from the date of acquisition through calendar year 2013. A cash earn-out payment totaling approximately $5.5 million and employee bonus payments totaling approximately $0.3 million for the achievement of the first two milestones were made during the second quarter of 2012. The maximum remaining amount of the earn-out payments is approximately $5.5 million. The maximum remaining amount of the employee bonuses is $0.3 million.

(c) Acquisition-related Obligations

•

Standing Stone

Under the terms of the acquisition agreement we acquired the remaining 19.08% of the issued and outstanding capital stock of Standing Stone, the holders of which were officers and employees of Standing Stone, in May 2012 for an aggregate purchase price of approximately $2.6 million.

•

Agreements with Epocal

In November 2009, we entered into a distribution agreement with Epocal, Inc., or Epocal, to distribute the epoc^® Blood Analysis System for blood gas and electrolyte testing for $20.0 million, which is recorded on our accompanying consolidated balance sheet in other intangible assets, net. We also entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal for a total potential purchase price of up to $255.0 million, including a base purchase price of up to $172.5 million if Epocal achieves certain gross margin and other financial milestones on or prior to October 31, 2014, plus additional payments of up to $82.5 million if Epocal achieves certain other milestones relating to its gross margin and product development efforts on or prior to this date. The agreement contains a working capital adjustment whereby the purchase price is increased or decreased to the extent that Epocal’s working capital at closing is more or less than a specified amount. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones. The acquisition will also be subject to other closing conditions, including the receipt of any required antitrust or other approvals. In April 2011, we entered into a license agreement with Epocal and amended some of the terms of the definitive agreement to acquire Epocal. The license agreement provides us with royalty-free access to certain Epocal intellectual property for use in our home-use products and provided for an upfront license payment of $18.0 million, which we paid in 2011. The amendment of the definitive agreement increased the working capital target by $18.0 million, which may have the effect of reducing the purchase price of the acquisition. The amendment of the agreement also added an additional potential milestone payment of $8.0 million. As a result, the maximum purchase price under the acquisition agreement increased to $263.0 million.

(d) FDA Inspection and Office of Inspector General Subpoena

In March 2012, the Food & Drug Administration, or FDA, began an inspection of our San Diego facility related to our Alere Triage products. During the inspection, the FDA expressed concern about the alignment between certain aspects of our labeling for the Alere Triage products and the quality control release specifications that had been in effect prior to the inspection. As a result and as previously disclosed, we implemented two recalls of Alere Triage products during the second quarter of 2012, as well as interim quality control release specifications. In June 2012, the FDA closed the inspection, and we received inspectional observations on FDA Form 483. In July 2012, we provided the FDA with a detailed response to its inspectional observations which included a plan for how we proposed to address each observation as well as a timeline for doing so. Since submitting this response, we have been working diligently to address each of these observations. Also, on or about September 28, 2012, we agreed with the FDA on a set of final release specifications for our Alere Triage meter-based products that further align the product release specifications to the package insert.

On October 9, 2012, we received a warning letter from the FDA citing the same inspectional observations set forth in the FDA Form 483 received in June. The warning letter, which was subsequently reissued as of October 22, 2012, acknowledged our July response but did not take into account the timeline that we had proposed or any of our efforts taken after our July response. On October 30, 2012, we responded to the warning letter and submitted evidence of our completion of most of the actions detailed in our July response, including all of the actions then due under our timeline. We will continue to provide the FDA with further periodic updates on the status of the actions that remain to be completed over the next several months to fully address the issues that the FDA has identified.

As we anticipated, the final release specifications agreed to with the FDA for our Alere Triage products have resulted in lower manufacturing yields for those products. While we continue to make significant progress in controlling our manufacturing process to improve overall yields, we also continue to expand our manufacturing capacity to address the lower yield rates. These efforts, as well as our efforts to address the FDA’s observations set forth in the FDA Form 483 and the warning letter, have increased our manufacturing costs and reduced our margins on these products.

Also, in May 2012, we received a subpoena from the Office of Inspector General of the Department of Health and Human Services. The subpoena seeks documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the government and are in the process of responding to the subpoena.

We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with these matters. Also, except for increases in manufacturing costs and decreased profitability for our Alere Triage products, we are unable to predict what impact, if any, these matters or ensuing proceedings, if any, will have on our financial condition, results of operations or cash flows.

(16) Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position, results of operations, comprehensive income or cash flows upon adoption.

Recently Issued Standards

In July 2012, the FASB issued Accounting Standards Update, or ASU, No. 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, or ASU 2012-02. ASU 2012-02 allows an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The adoption of this standard is not expected to have a material impact on our financial position, results of operations, comprehensive income or cash flows.

Recently Adopted Standards

Effective January 1, 2012, we adopted ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing for Goodwill Impairment, or ASU 2011-08. ASU 2011-08 allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. This update does not change the current guidance for testing other indefinite-lived intangible assets for impairment. The adoption of this standard did not have an impact on our financial position, results of operations, comprehensive income or cash flows.

Effective January 1, 2012, we adopted ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, or ASU 2011-05. ASU 2011-05 (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not affect how earnings per share is calculated or presented. Effective January 1, 2012, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, or ASU 2011-12. As these accounting standards only require enhanced disclosure, the adoption of these standards did not impact our financial position, results of operations, comprehensive income or cash flows.

Effective January 1, 2012, we adopted ASU No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards.

(17) Equity Investments

We account for the results from our equity investments under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures, based on the percentage of our ownership interest in the business. Our equity investments primarily include the following:

(a) Axis-Shield

During the third quarter of 2011, we acquired, in various transactions, approximately 15.0 million shares of Axis-Shield, which represented a 29.9% ownership interest in Axis-Shield as of September 30, 2011. Our equity earnings attributable to this investment for the third quarter of 2011 were immaterial. During the fourth quarter of 2011, we acquired a controlling interest of Axis-Shield.

(b) SPD

In May 2007, we completed the formation of SPD, our 50/50 joint venture with P&G for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form SPD, we ceased to consolidate the operating results of our consumer diagnostics business related to SPD. We recorded earnings of $2.1 million and $8.2 million during the three and nine months ended September 30, 2012, respectively, and we recorded earnings of $3.6 million and $3.0 million during the three and nine months ended September 30, 2011, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods.

In May 2006, we acquired 49% of TechLab, Inc., or TechLab, a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic-associated diarrhea and parasitology. We recorded earnings of $0.6 million and $1.8 million during the three and nine months ended September 30, 2012, respectively, and we recorded earnings of $0.3 million and $1.5 million during the three and nine months ended September 30, 2011, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective periods.

Summarized financial information for SPD and TechLab on a combined basis is as follows (in thousands):

Combined Condensed Results of Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net revenue	$	54,650	$	61,358	$	165,483	$	178,180

Gross profit	$	34,411	$	38,294	$	105,175	$	110,659

Net income after taxes	$	5,399	$	7,858	$	20,083	$	9,142

Combined Condensed Balance Sheets:


	September 30, 2012		December 31, 2011
Current assets	$	84,101	$	84,376
Non-current assets		38,806		37,659

Total assets	$	122,907	$	122,035

Current liabilities	$	43,025	$	49,453
Non-current liabilities		7,355		6,326

Total liabilities	$	50,380	$	55,779

(18) Guarantor Financial Information

Our 9% senior subordinated notes due 2016, our 7.875% senior notes due 2016, and our 8.625% senior subordinated notes due 2018 are guaranteed by certain of our consolidated wholly owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, balance sheets as of September 30, 2012 and December 31, 2011, the related statements of operations and statements of comprehensive income for each of the three and nine months ended September 30, 2012 and 2011, respectively, and the statements of cash flows for the nine months ended September 30, 2012 and 2011, for Alere Inc., the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of Alere Inc. and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

We have extensive transactions and relationships between various members of the consolidated group. These transactions and relationships include intercompany pricing agreements, intellectual property royalty agreements and general and administrative and research and development cost-sharing agreements. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

For comparative purposes, certain amounts for prior periods have been reclassified to conform to the current period classification.

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2012

(in thousands)


	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net product sales	$	—		$	214,136		$	287,717		$	(42,040	)	$	459,813
Services revenue		—			148,897			77,518			—			226,415

Net product sales and services revenue		—			363,033			365,235			(42,040	)		686,228
License and royalty revenue		—			(4,958	)		4,914			5,232			5,188

Net revenue		—			358,075			370,149			(36,808	)		691,416

Cost of net product sales		928			103,415			156,602			(37,333	)		223,612
Cost of services revenue		—			81,134			41,239			(2,242	)		120,131

Cost of net product sales and services revenue		928			184,549			197,841			(39,575	)		343,743
Cost of license and royalty revenue		—			—			(3,334	)		5,232			1,898

Cost of net revenue		928			184,549			194,507			(34,343	)		345,641

Gross profit (loss)		(928	)		173,526			175,642			(2,465	)		345,775

Operating expenses:
Research and development		6,292			17,088			17,182			—			40,562
Sales and marketing		1,220			74,871			84,553			—			160,644
General and administrative		11,392			42,706			51,739			—			105,837

Total operating expenses		18,904			134,665			153,474			—			307,043

Operating income (loss)		(19,832	)		38,861			22,168			(2,465	)		38,732
Interest expense, including amortization of original issue discounts and deferred financing costs		(54,324	)		(9,205	)		(2,856	)		11,524			(54,861	)
Other income (expense), net		1,534			8,298			620			(11,524	)		(1,072	)

Income (loss) before provision (benefit) for income taxes		(72,622	)		37,954			19,932			(2,465	)		(17,201	)
Provision (benefit) for income taxes		(27,401	)		5,099			12,558			(933	)		(10,677	)

Income (loss) before equity earnings of unconsolidated entities, net of tax		(45,221	)		32,855			7,374			(1,532	)		(6,524	)
Equity in earnings (losses) of subsidiaries, net of tax		41,052			(230	)		—			(40,822	)		—
Equity earnings of unconsolidated entities, net of tax		652			—			2,405			(50	)		3,007

Net income (loss)		(3,517	)		32,625			9,779			(42,404	)		(3,517	)
Less: Net income attributable to non-controlling interests		—			—			286			—			286

Net income (loss) attributable to Alere Inc. and Subsidiaries		(3,517	)		32,625			9,493			(42,404	)		(3,803	)
Preferred stock dividends		(5,352	)		—			—			—			(5,352	)

Net income (loss) available to common stockholders	$	(8,869	)	$	32,625		$	9,493		$	(42,404	)	$	(9,155	)

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2011

(in thousands)


	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net product sales	$	—		$	227,479		$	224,801		$	(34,026	)	$	418,254
Services revenue		—			144,641			17,625			—			162,266

Net product sales and services revenue		—			372,120			242,426			(34,026	)		580,520
License and royalty revenue		—			1,728			4,475			(954	)		5,249

Net revenue		—			373,848			246,901			(34,980	)		585,769

Cost of net product sales		1,097			100,514			127,086			(34,798	)		193,899
Cost of services revenue		—			77,828			6,349			—			84,177

Cost of net product sales and services revenue		1,097			178,342			133,435			(34,798	)		278,076
Cost of license and royalty revenue		—			—			2,685			(954	)		1,731

Cost of net revenue		1,097			178,342			136,120			(35,752	)		279,807

Gross profit (loss)		(1,097	)		195,506			110,781			772			305,962

Operating expenses
Research and development		5,063			16,195			13,514			—			34,772
Sales and marketing		1,973			78,667			53,736			—			134,376
General and administrative		7,424			52,300			32,171			—			91,895

Total operating expenses		14,460			147,162			99,421			—			261,043

Operating income (loss)		(15,557	)		48,344			11,360			772			44,919
Interest expense, including amortization of original issue discounts and deferred financing costs		(46,857	)		(13,418	)		(4,240	)		17,188			(47,327	)
Other income (expense), net		4,055			14,889			(10,006	)		(17,188	)		(8,250	)
Gain on sale of joint venture interest		16,309			—			272,587			—			288,896

Income (loss) from continuing operations before provision (benefit) for income taxes		(42,050	)		49,815			269,701			772			278,238
Provision (benefit) for income taxes		(2,010	)		19,156			25,475			31			42,652

Income (loss) from continuing operations before equity earnings of unconsolidated entities, net of tax		(40,040	)		30,659			244,226			741			235,586
Equity in earnings (losses) of subsidiaries, net of tax		279,392			(24	)		—			(279,368	)		—
Equity earnings of unconsolidated entities, net of tax		352			—			3,772			(6	)		4,118

Net income		239,704			30,635			247,998			(278,633	)		239,704
Less: Net income attributable to non-controlling interests		—			—			138			—			138

Net income attributable to Alere Inc. and Subsidiaries		239,704			30,635			247,860			(278,633	)		239,566
Preferred stock dividends		(5,358	)		—			—			—			(5,358	)

Net income available to common stockholders	$	234,346		$	30,635		$	247,860		$	(278,633	)	$	234,208

CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2012

(in thousands)


	Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net product sales	$	—		$	635,601	$	868,231	$	(104,807	)	$	1,399,025
Services revenue		—			447,886		204,818		—			652,704

Net product sales and services revenue		—			1,083,487		1,073,049		(104,807	)		2,051,729
License and royalty revenue		—			8,807		10,191		(7,665	)		11,333

Net revenue		—			1,092,294		1,083,240		(112,472	)		2,063,062

Cost of net product sales		2,635			301,488		466,994		(99,453	)		671,664
Cost of services revenue		—			238,528		95,264		(2,242	)		331,550

Cost of net product sales and services revenue		2,635			540,016		562,258		(101,695	)		1,003,214
Cost of license and royalty revenue		—			—		13,059		(7,665	)		5,394

Cost of net revenue		2,635			540,016		575,317		(109,360	)		1,008,608

Gross profit (loss)		(2,635	)		552,278

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